ABC has a current stock price of $25.50, and a current dividend of $2.50. If dividends...
ABC has a current stock price of $25.50, and a current dividend of $2.50. If dividends have a consistent growth rate of 2%, determine the cost of capital.
Question 4 options:
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14% |
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12% |
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10% |
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13% |
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11% |
Homework Answers
Answer is 12%
Current Dividend, D0 = $2.50
Growth Rate, g = 2.00%
Current Price, P0 = $25.50
Expected Dividend, D1 = D0 * (1 + g)
Expected Dividend, D1 = $2.50 * 1.02
Expected Dividend, D1 = $2.55
Cost of Capital = D1 / P0 + g
Cost of Capital = $2.55 / $25.50 + 0.02
Cost of Capital = 0.12 or 12%
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