Answer:
The cost of equity capital is 9.26%
Step-by-step explanation:
Using the DCF approach we usually calculate the price of stock or fair value of stock at a certain period in time based on the dividends the company is expected to pay. If the price today is provided then we can calculate the missing figure if any when other variables are provided.
The formula for DCF with constant growth model is,
P0 = D0*(1+g) / r - g
Where r is the required rate of return.
26 = 0.8*(1+0.06) / r - 0.06
26 * (r-0.06) = 0.848
26r - 1.56 = 0.848
26r = 0.848 + 1.56
r = 2.408 / 26
r = 0.0926 or 9.26%