Question

Textron Inc has a common stock that will pay a dividend of $14 per share next year. If the common stock price today is $179 and the growth rate of firm is 0.03, find the cost of capital for common stock.

Answer 1

the cost of capital for the common stock is 10.82%

Step-by-step explanation:

The computation of the cost of capital for the common stock is as follows:

= (Dividend to be paid next year ÷ Price of the common stock) + growth rate

= ($14 ÷ $179) + 0.03

= 0.078 + 0.03

= 10.82%

Hence, the cost of capital for the common stock is 10.82%

We simply applied the above formula so that the correct value could come

And, the same is to be considered