Under the constant dividend growth model

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Reference no: EM13835160

Company A has a price of $30 and will issue a dividend of $2.10 next year. It has a beta of 2, the risk-free rate is 3%, and the market risk premium is estimated to be 4%.

Show all work for full credit.

a) Estimate the equity cost of capital for Company A.

b) Under the Constant Dividend Growth Model (Gordon Growth Model), at what rate do you need to expect Company A's dividends to grow to get the same equity cost of capital as in part a?

Reference no: EM13835160

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