Neeson Co.paid dividends in the last three years of $3.00,$3.15,and $3.31,respectively.The current stock price of Neeson is $30.00.Assuming the next dividend will grow at the same rate as the last three years,what is Neeson's cost of equity?

Question

Quizplus · Accepted Answer

Step 1 - Compute the growth rate of dividends. g = 11ea7fdb_fc6b_7ea8_a768_8bb43f056538_TB2902_11 - 1 g = 11ea7fdb_fc6b_7ea9_a768_3d4ecf0e4c29_TB2902_11 - 1 g = .050397 Step 2 - Compute D₁. D₁ = D₀(1 + g) D₁ = $3.31(1.050397) = $3.4765 Step 3 - Use the constant growth model to estimate the cost of equity. k_e = 11ea7fdb_fc6b_7eaa_a768_d357d7d4c2d4_TB2902_11 + g k_e = 11ea7fdb_fc6b_7eab_a768_7f435bf90bff_TB2902_11 + .050397 k_e= 0.1662 or 16.62%

Neeson CoPaid Dividends in the Last Three Years of $3