A firm's most recent annual dividend was $2 per share; its shares sell for $40 in the stock market, and the company expects its dividend to grow at a constant rate of 5% in the foreseeable future

Using the dividend growth (Gordon) model, what would you estimate its equity cost of capital to be?


10.25% = [(2 )(1.05 )/(40 + .05 )]

Economics

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