Question

Using the constant growth model, Camp Company's expected dividend yield ( D1) is 4% of the stock price, and its growth rate is 6%. If the tax rate is 35%, what is the firm's cost of equity?

Answer 1

Ks = 4%+6% = 10%

Step-by-step explanation:

so we need to remember that tax rate doesn't affect Cost of equity

in this case the formula will be:

cost of equity is equal to=dividend yield+Growth rate or Ks = D1/P + g

Camp Company's expected dividend yield ( D1) is 4%

growth rate is 6%

SO we get Ks = 4%+6% = 10%