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5 July, 03:32

The Muse Co. just issued a dividend of $3.10 per share on its common stock. The company is expected to maintain a constant 6.40 percent growth rate in its dividends indefinitely. If the stock sells for $62 a share, what is the company's cost of equity?

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  1. 5 July, 03:40
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    The the company's cost of equity is 11.72%.

    Explanation:

    Cost of equity = (D1/P0) + g

    Here D1 = D (1 + g)

    = (1 + 0.064) * 3.10

    = 3.2984

    P0 = 62

    g = dividend growth rate = 0.064

    Cost of equity = (3.2984/62) + 0.064

    = 0.0532+0.064

    = 11.72%

    Therefore, the the company's cost of equity is 11.72%.
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