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likoan [24]
2 years ago
13

If Virusfree Inc's stock sells for $40, pays a $4.25 dividend, and the stock is expected to grow at a constant rate of 5%, which

one of the following would be the estimated cost of equity? 15.63% 17.46% 14.52% 12.69%
Business
1 answer:
Alika [10]2 years ago
6 0

Answer:

<u><em>15.63%</em></u>

Explanation:

The answer is simply calculated by putting a simple formula in place.

The formula is, P = D/(r-g)

Hence, applying the formula, we have the following values,

P: 40 , D: 4.25 , g: 0.05 & r: ?

Step 1: 40 = 4.25/(r-0.05)

Step 2: r = (4.25/40)+0.05

Hence the cost of equity is = 15.63%

Thankyou.

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Interest rate                   9.0%  

1st Annuity (Savings)     $7,500          $56,425 - Compounded at 9%  2nd Anuuity (Deposits)   $15,000                   NA  

Gift                                   $25,000                   NA  

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