Computing higher cost of equity

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Reference no: EM1373132

The shares of Hod corporation which are at present trading at $12.50, have just paid a dividend of $1.50 / share. Based on investment analysts, the historical growth rate for Hod's dividends of 2 percent per year is expected to continue for the foreseeable future, the firm's beta is 1.4, and the reasonable estimates for the risk-free rate and the expected market risk premium is 3% and 6%, respectively. The shares of Sol Inc. have a current market price of $10 / share and the investment analysts informed you that the stock is expected to appreciate by 5% per year for the foreseeable future, that the shares are expected to pay a dividend of $1 / share over the next year, and the company's beta is 0.9. Which company, Hod or Sol, has the higher cost of equity?

Reference no: EM1373132

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