Using the constant growth model, Camp Company's expected dividend yield (D1) is 4% of the stock price, and its growth rate is 6%. If the tax rate is 35%, what is the firm's cost of equity?

Question

Business

Edwin Terrell

1 August, 05:00

Using the constant growth model, Camp Company's expected dividend yield (D1) is 4% of the stock price, and its growth rate is 6%. If the tax rate is 35%, what is the firm's cost of equity?

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Answers (1)

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Karli · Answer 1

Ks = 4%+6% = 10%

Explanation:

so we need to remember that tax rate doesn't affect Cost of equity

in this case the formula will be:

cost of equity is equal to=dividend yield+Growth rate or Ks = D1/P + g

Camp Company's expected dividend yield (D1) is 4%

growth rate is 6%

SO we get Ks = 4%+6% = 10%