HomeworkLib
Question

Chelsea Fashions is expected to pay an annual dividend of $1.26 a share next year. The...

Chelsea Fashions is expected to pay an annual dividend of $1.26 a share next year. The market price of the stock is $24.09 and the growth rate is 2.6 percent. What is the cost of equity?

Multiple Choice

  • 7.91 percent

  • 9.77 percent

  • 9.24 percent

  • 7.54 percent

  • 7.83 percent

business   finance   
1 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Here

Dividend next year D1 = $1.26

share price P= $24.09

growth rate g= 2.6%

cost of equity r= ?

we will use dividend discount model to find out cost of equity

share price P = D1/(r-g)

24.09 = 1.26/(r-2.6%)

24.09*r-24.09*0.026 =1.26

24.09*r = 1.26+0.626

24.09r = 1.89

r= 0.0783

r = 7.83%

Hence cost of equity is 7.83% so last option is correct here.

Thanks

0 0
Add a comment
Know the answer?
Add Answer to:
Chelsea Fashions is expected to pay an annual dividend of $1.26 a share next year. The...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • 46. Chelsea Fashi ons is expected to pay an annual dividend of $0.80 a share next...

    46. Chelsea Fashi ons is expected to pay an annual dividend of $0.80 a share next year. narket price of the stock is $22.40 and the growth rate is 5 percent. What is the firm's cost of equity? A. 7.58 percent B. 7.91 percent C. 8.24 percent D. 8.57 percent E. 9.00 percent

  • ABC Inc. is expected to pay an annual dividend of R0.80 a share next year. The...

    ABC Inc. is expected to pay an annual dividend of R0.80 a share next year. The market price of the share is R22.40 and the growth rate is 5%. What is the firm's cost of equity? 7.6% 7.9% 8.2% 8.6%

  • 1. Excelor stock is expected to pay $2.80 per share as its next annual dividend. The...

    1. Excelor stock is expected to pay $2.80 per share as its next annual dividend. The firm has a policy of increasing the dividend by 10.0 percent annually. The stock has a market price of $13.61 and a beta of 2.6. The market risk premium is 8.54 percent and the risk-free rate is 4.80 percent. What is the cost of equity? 27.71 percent 28.14 percent 29.18 percent 28.79 percent 2. The 13.50 percent preferred stock of Ajax Unlimited is selling...

  • 10) Standard deviation measures which type of risk? 10) A) Economic B) Total C) Systematic D)...

    10) Standard deviation measures which type of risk? 10) A) Economic B) Total C) Systematic D) Unsystematic E) Non diversifiable issued by JW 11) 11) The bond market requires a return of9.8 percent on the five-year bonds Industries. The 9.8 percent is referred to as which one of the following? A) Face rate B) Coupon rate C) Call rate. D) Yield to maturity. E) Current yield. 12) What are the distributions of either cash or stock to shareholders by a...

  • New Gadgets, Inc., currently pays no dividend but is expected to pay its first annual dividend of $5.05 per share...

    New Gadgets, Inc., currently pays no dividend but is expected to pay its first annual dividend of $5.05 per share exactly 10 years from today. After that, the dividends are expected to grow at 3.8 percent forever. If the required return is 11.6 percent, what is the price of the stock today? Multiple Choice $21.61 $64.74 $46.28 $28.13 42411 20 of 20 <Prev Next Help Save & Exit Submit Brickhouse is expected to pay a dividend of $2.55 and $2.22...

  • Business Calculators Inc. will pay an annual dividend of $2.25 per share next year. The company...

    Business Calculators Inc. will pay an annual dividend of $2.25 per share next year. The company just announced that future dividends will be increasing by 0.75 percent annually. How much are you willing to pay for one share of this stock if you require a rate of return of 12.25 percent? Multiple Choice

  • A stock expects to pay a dividend of $3.72 per share next year. The dividend is...

    A stock expects to pay a dividend of $3.72 per share next year. The dividend is expected to grow at 25 percent per year for three years followed by a constant dividend growth rate of 4 percent per year in perpetuity. What is the expected stock price per share 5 years from today, if the required return is 12 percent?

  • This morning you purchased a stock that just paid an annual dividend of $1.70 per share.

     This morning you purchased a stock that just paid an annual dividend of $1.70 per share. You require a return of 9.5 percent and the dividend will increase at an annual growth rate of 2.6 percent. If you sell this stock in three years, what will your capital gain be? Multiple Choice $2.31 $2.60 $2.02 $2.66 Fowler is expected to pay a dividend of $1.53 one year from today and $1.68 two years from today. The company has a dividend payout ratio of 45 percent and...

  • A stock expects to pay a dividend of $4.07 per share next year. The dividend is...

    A stock expects to pay a dividend of $4.07 per share next year. The dividend is expected to grow at 25 percent per year for four years followed by a constant dividend growth rate of 6 percent per year in perpetuity. What is the expected stock price per share 10 years from today, if the required return is 13 percent? A. $177 B. $190 CC. $201 CD. $163

  • Gee-Gee's is going to pay an annual dividend of $2.05 a share next year. This year,...

    Gee-Gee's is going to pay an annual dividend of $2.05 a share next year. This year, the company paid a dividend of $2 a share. The company adheres to a constant rate of growth dividend policy. What will one share of this common stock be worth six years from now if the applicable discount rate is 11.2 percent?

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT