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7 September, 11:00

HighGrowth Company has a stock price of $ 23. The firm will pay a dividend next year of $ 1.19 , and its dividend is expected to grow at a rate of 3.7 % per year thereafter. What is your estimate of HighGrowth's cost of equity capital? The required return (cost of capital) of levered equity is nothing %

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  1. 7 September, 14:28
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    Cost of equity = 8.87%

    Explanation:

    Given that,

    Stock price = $23

    Firm will pay a dividend next year = $1.19

    Dividend is expected to grow at a rate = 3.7 % per year thereafter

    cost of equity = (Dividend next year : Stock price) : Dividend growth rate

    cost of equity = ($1.19 : $23) + 3.7%

    cost of equity = 5.17% + 3.7%

    cost of equity = 8.87%
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