Question

Question 1 1 pts The Say Hey! Co. just issued a dividend of $2.45 per share on its common stock. The company is expected to maintain a constant 6 percent growth rate in its dividends indefinitely. The company's tax rate is 40%. If the stock sells for $45 a share, what is the company's cost of equity? Choose the range that includes the correct solution. O Less than 10% Greater than or equal to 10%, but less than 11% Greater than or equal to 11%, but less than 12% Greater than or equal to 12%, but less than 13% O Greater than or equal to 13%

Answer 1

Question 1.

Given,

Current price = $2.45

Growth rate (g) = 6% or 0.06

Stock price = $45

Solution :-

Company's cost of equity = [current dividend x (1 + g)] $\div$ stock price

= [$2.45 x (1 + 0.06)] $\div$ $45

= [$2.45 x 1.06] $\div$ $45

= $2.597 $\div$ $45 = 0.0577 or 5.77%

The answer is "Less than 10%".

Answer 2

2. There are aother