Clancy's just paid its annual dividend of $1.48 per share.Analysts expect the stock price to increase by 2.1 percent annually and value the stock at $14.65 per share currently.What is the cost of equity for this firm?

Question

Quizplus · Accepted Answer

The cost of equity can be calculated using the dividend discount model: Cost of Equity = (Dividend per share / Current stock price) + Growth rate. Here, it is ($1.48 / $14.65) + 0.021 = 0.1241 or 12.41 percent.

Clancy's Just Paid Its Annual Dividend of $1