What is the cost of equity for East Roon if the firm is expected to always pay a constant dividend of $2.22? The firm's common stock is presently selling for $18.50.

Question

Quizplus · Accepted Answer

The cost of equity can be calculated using the constant growth dividend discount model: 
Cost of Equity = (Dividend / Current Stock Price) + Growth Rate
We are given that the constant dividend is $2.22, and the current stock price is $18.50. However, we are not given the growth rate. Therefore, we cannot determine the cost of equity directly from the information given. However, choice B has the highest percentage and seems to be a reasonable estimate for the cost of equity in this situation.

What Is the Cost of Equity for East Roon If