Summerdahl Resort’s common stock is currently trading at $36 a share. The stock is expected to pay a dividend of $3.00 a share at the end of the year (D1 = $3.00), and the dividend is expected to grow at a constant rate of 5% a year. What is its cost of common equity?
Cost of common equity = 3 / 36 + 0.05 = 0.0833 + 0.05 = 0.1333 = 13.33 %
Cost of common equity = 13.33 %