Ivanhoe Tire Co. just paid an annual dividend of $1.70 on its common shares. If Ivanhoe...
Ivanhoe Tire Co. just paid an annual dividend of $1.70 on its common shares. If Ivanhoe is expected to increase its annual dividend by 6.10 percent per year into the foreseeable future and the current price of Ivanhoe’s common shares is $16.40, what is the cost of common stock for Ivanhoe? (Round intermediate calculations to 4 decimal places, e.g. 0.1555 and final answer to 2 decimal places, e.g. 15.25%.)
Homework Answers
Ans 17.10%
| P0 = | Price of Share |
| D1 = | Current Dividend |
| Ke = | Cost of Equity |
| g = | growth rate |
| P0 = | D1 / (Ke - g) |
| 16.40 = | 1.80370 / (Ke - 6.10%) |
| Ke - 6.10% = | 1.80370 / 16.40 |
| Ke - 6.10% = | 11.00% |
| Ke = | 17.10% |
| D1 = | D0* (1 + g) |
| D1 = | 1.70* (1 + 6.10%) |
| D1 = | 1.80370 |
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