Heavy Rain Corporation paid a dividend of $5 per share and is expected to grow at a constant rate of 2.70% over the foreseeable future. The stock currently sells for $71 per share. Using the dividend capitalization model, the cost of equity for Heavy Rain is calculated to be 16.97%.

1. 12. Heavy Rain Corporation just paid a dividend of $5.00 per
share, and the firm is expected to experience constant growth of
2.70% over the foreseeable future. The common stock is
currently selling for $71 per share. What is Heavy Rain
12. Heavy Rain Corporation just paid a dividend of $5.00 per
share, and the firm is expected to experience constant growth of
2.70% over the foreseeable future. The common stock is
currently selling for $71 per share. What is Heavy Rain
Solution
Answer:
Cost of equity = D1 / P0 + g
= 5*1.027 / 71 + 0.027
= 14.27% + 2.70%
= 16.97%