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Summerdahl Resort’s common stock is currently trading at $36 a share. The stock is expected to pay a dividend of $3.00 a share at the end of the year D1 $3 00, and the dividend is expected to grow at a constant rate of 5% a year. What is its cost of common equity?

Respuesta :

Karabo99

Answer:

The cost of common equity is 13.33%

Explanation:

current price (Po) = $36

dividend (D1) = $3

growth rate (g) = 5%

let the cost of common equity be r

Po = D1/(r - g)

$36 = $3/(r -0.05)

r = 3/36 +0.05

  = 0.1333

Therefore, The cost of common equity is 13.33%

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