A stock sells for $30. The next dividend will be $6 per share. If the return...
A stock sells for $30. The next dividend will be $6 per share. If the return on equity ROE is a constant 15% and the company reinvests 20% of earnings in the firm, what must be the opportunity cost of capital? (Do not round intermediate calculations.)
Cost of Capital %
Homework Answers
b = retention ratio = 20%, ROE = 15%
Growth rate = g = b x ROE = 20% x 15% = 3%
ke = D1/P0 + g = 6/30 + 0.03 = 0.20 + 0.03 = 0.23 = 23%
Answer : 23% (Thumbs up please)
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