XYZ Company issues common stock at a price of $25 a share.The firm expects to pay a dividend of $2.20 a share next year.If the dividend is expected to grow at 2.5% annually,what is XYZ's cost of common equity?

Name: XYZ Company issues common stock at a price of $25 a share.The firm expects to pay a dividend of $2.20 a share next year.If the dividend is expected to grow at 2.5% annually,what is XYZ's cost of common equity?
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Quizplus · Accepted Answer

r_e = $1.20 / $25 + 0.025 = 0.113, or 11.3%

XYZ Company Issues Common Stock at a Price of $25