Sandhill Wok Co. is expected to pay a dividend of $1.40 one year from today on...
Sandhill Wok Co. is expected to pay a dividend of $1.40 one year from today on its common shares. That dividend is expected to increase by 5.00 percent every year thereafter. If the price of Sandhill common stock is $10.00, what is the cost of its common equity capital?
Homework Answers
as per gordon growth model:
price = dividend after one year / (cost of equity - growth rate)
let cost of equity be x.
=>$10.00 = $1.40/(x -0.05)
=>(x-0.05) = $1.40/10.00
=>x -0.05 =0.14
=>x =0.19
=>cost of its common equity capital = 19%
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