A share of wells Fargo stock is paid a dividend of $3/share which is expected to...
A share of wells Fargo stock is paid a dividend of $3/share which is expected to grow at 2% annually. If the investor paid $1 for every share purchased at $40 and has 5% required rate of return, what is the cost of common stock equity of this share?
Homework Answers
Cost of Equity = [{D0 * (1 + g)} / (P0 - F)] + g
= [{$3 * (1 + 0.02)} / ($40 - $1)] + 0.02
= 0.0785 + 0.02 = 0.0985, or 9.85%
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