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Crane Tire Co. just paid an annual dividend of $1.70 on its common shares. If Crane...

Crane Tire Co. just paid an annual dividend of $1.70 on its common shares. If Crane is expected to increase its annual dividend by 5.10 percent per year into the foreseeable future and the current price of Crane’s common shares is $16.67, what is the cost of common stock for Crane?

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Answer #1
Ans. Cost of common stock = [Dividend per share * (1 + growth rate) / Stock price] + Growth rate
[$1.70 * (1 + 0.051) / $16.67] + 0.051
[$1.70 * 1.051 / $16.67] + 0.051
0.1072 + 0.051
0.1582 or   15.82%
So, the cost of common stock is 15.82%.
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