Upper Roads is an all-equity financed firm.The beta is 0.89,the market risk premium is 7.2 percent,and the tax rate is 34 percent.The firm just issued its annual dividend of $1.04 per share and announced that future dividends will increase by 3 percent annually.The stock sells for $22 a share.What is the cost of equity?

Question

Quizplus · Accepted Answer

R_S = ($1.04 × 1.03)/ $22 + 0.03 = 0.0787,or 7.87%

Upper Roads Is an All-Equity Financed Firm