Question

IBM expects to pay a dividend of $2 next year and expects these dividends to grow at 6​% a year. The price of IBM is $90 per share. What is​ IBM's cost of equity​ capital?

Answer 1

Cost of equity = 8.22%

Step-by-step explanation:

Cost of equity = Dividend per share /current market value + growth rate of dividend

Cost of equity = 2/90 + 6%

Cost of equity = 0.0222 + 6%

Cost of equity =0.0222 + 0.06

Cost of equity = 0.0822

Cost of equity = 8.22%