Question

Sweet Treats common stock is currently priced at $17.15 a share. The company just paid $1.22 per share as its annual dividend. The dividends have been increasing by 2.4 percent annually and are expected to continue doing the same. What is this firm's cost of equity

Answer 1

9.68 percent

Explanation:

Calculation to determine the firm's cost of equity

Using this formula

Cost of equity=[(Annual dividend×Increase in dividends×/Current price of common stock]+Dividends

Let plug in the formula

Cost of equity=[($1.22 × 1.024)/$17.15] + 0.024

Cost of equity=($1.24928/$17.15)+0.024

Cost of equity=0.0728+0.024

Cost of equity=0.0968*100

Cost of equity=9.68 percent

Therefore the firm's cost of equity is 9.68 percent