MNP expects to pay a dividend of $2.50 next year and expects these dividends to grow at 3% a year. The price of MNP is $50 per share. What is MNP's cost of equity capital?

Question

Quizplus · Accepted Answer

Using the dividend growth model, we can calculate the cost of equity capital (Ke) as follows:
Ke = (Dividend per share / Price per share) + Growth rate
Ke = ($2.50 / $50) + 3% = 8%
Therefore, the cost of equity capital for MNP is 8%, which is closest to option C - 8.00%.

MNP Expects to Pay a Dividend of $2