Sweet Treats common stock is currently priced at $36.72 a share. The company just paid $2.18 per share as its annual dividend. The dividends have been increasing by 2.2 percent annually and are expected to continue doing the same. What is the cost of equity?
=8.27%
Please check the answers and show all work typed out. No excel or grid style please as I am on mobile.
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Formula, |
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Cost of Equity = (Dividend Per Shares (For Next Year) / Current Market Value of Stock ) + Growth rate of Dividends |
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Dividend Per Shares of Next Year = Dividend Last Year X ( 1 + Dividend Growth Rate) |
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Dividend Per Shares of Next Year = $ 2.18 X ( 1 + 0.022) |
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Dividend Per Shares of Next Year = $ 2.18 X 1.022 |
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Dividend Per Shares of Next Year = $ 2.23 |
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Market Price of The Shares = $ 36.72% |
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Dividend Growth Rate = 2.2% |
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Cost of Equity = ( $ 2.23 / $ 36.72 ) + 2.2% |
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Cost of Equity = 6.07% + 2.20% |
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Cost of Equity = 8.27% |
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Answer = 8.27% |
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