Oriole Inc.’s common shares currently sell for $40 each. The firm’s management believes that its shares...
Oriole Inc.’s common shares currently sell for $40 each. The firm’s management believes that its shares should really sell for $50 each. The firm just paid an annual dividend of $2 per share and management expects those dividends to increase by 2 percent per year forever (and this is common knowledge to the market). Collapse question part (a1) What is the current cost of common equity for the firm? (Round final answer to 2 decimal places, e.g. 15.25%.) The current cost of common equity for the firm %
Homework Answers
| As per DDM |
| Price = recent dividend* (1 + growth rate )/(cost of equity - growth rate) |
| 40 = 2 * (1+0.02) / (Cost of equity - 0.02) |
| Cost of equity% = 7.1 |
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