IBM just paid a dividend of $3.5 and expects these dividends to grow at 9% a year.The price of IBM is $100 per share.What is IBM's cost of equity capital?

Question

Quizplus · Accepted Answer

To calculate the cost of equity using the dividend discount model, we use the following formula:

Cost of Equity = (Dividend/Price) + Growth Rate

Plugging in the given values, we get:

Cost of Equity = (3.5/100) + 9% = 12.82%

Therefore, the answer is D, 12.82%.

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