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What is the company cost of equity

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Question

The Down and Out Co. just issued an annual dividend of $2.91 per share on its common stock. The company is expected to maintain a constant 5 percent growth rate in its annual dividend indefinitely. If the stock sells for $40 a share, what is the company's cost of equity?

Hint The stock price is simply the present value of the expected future cash flows. Here the cash flows (dividends) happen to be a growing perpetuity.

Reference no: EM133495974

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