HighGrowth Company has a stock price of $ 20$20. The firm will pay a dividend next...
HighGrowth Company has a stock price of
$ 20$20.
The firm will pay a dividend next year of $1.00, and its dividend is expected to grow at a rate of 4.0% per year thereafter. What is your estimate of HighGrowth's cost of equity capital?
The required return (cost of capital) of levered equity is _______%. (Round to one decimal place.)
Homework Answers
Ans 9.0%
| P0 = | Price of Share |
| D1 = | Current Dividend |
| Ke = | Cost of Equity |
| g = | growth rate |
| P0 = | D1 / (Ke - g) |
| 20 = | 1 / (Ke - 4%) |
| Ke - 4% = | 1 / 20 |
| Ke - 4% = | 5.00% |
| Ke = | 9.0% |
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