TLS expects to pay a dividend of $3 next year and expects these dividends to grow at 8% a year. The price of TLS is $95 per share. What is TLS' cost of equity capital?

Question

Quizplus · Accepted Answer

TLS' cost of equity capital can be calculated using the Gordon Growth Model (Dividend Discount Model): Cost of Equity = (Dividend per share next year / Current stock price) + Growth rate = ($3 / $95) + 8% = 11.16%.

TLS Expects to Pay a Dividend of $3 Next Year