Albert's recently paid its annual dividend of $1.98 per share.At that time,the firm announced that all future dividends will be increased by 2.2 percent annually.What is the firm's cost of equity if the stock is currently selling for $28.40 a share?

Question

Quizplus · Accepted Answer

The correct answer is A because the cost of equity is calculated as the dividend yield plus the expected growth rate. The dividend yield is $1.98/$28.40 = 0.0697, and the expected growth rate is 2.2%, so the cost of equity is 0.0697 + 0.022 = 0.0933, or 9.33%.

Albert's Recently Paid Its Annual Dividend of $1