If a firm is currently paying common share dividends to investors and those dividends are expected to grow at a low but steady rate in the future, then the cost of common equity for the firm can be calculated by using the current price of the firm's common shares.

Question

Quizplus · Accepted Answer

The cost of common equity can be calculated using the dividend growth model, which takes into account the current dividend, expected future dividend growth rate, and the current price of the common shares. Therefore, if a firm is currently paying dividends and those dividends are expected to grow at a low but steady rate, the current price of the common shares can be used to calculate the cost of common equity.

If a Firm Is Currently Paying Common Share Dividends to Investors