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Steve's Specialties, Inc. paid its dividend yesterday, which as $ 1.50. The dividend has been growing...

Steve's Specialties, Inc. paid its dividend yesterday, which as $ 1.50. The dividend has been growing at a rate of 0.040 and is expected to continue indefinitely at that rate. Steve's common stock is currently trading at 21.00 per share. The firms beta is 0.94. Treasuries (T-bills) are currently yielding 0.030, Average return on the market is 0.11. Using the DCF approach, what is Steve's cost of retained earnings?

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Answer #1

cost of retained earnings=(D1/Current price)+Growth rate

=(1.5*1.04)/21+0.04

which is equal to

=11.43%(Approx).

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