Cost of equity financing problem using Gordon Model approach

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Business Finance

Description

Heavy Rain Corporation just paid a dividend of $2.95 per share, and the firm is expected to experience constant growth of 2.21% over the foreseeable future. The common stock is currently selling for $69.90 per share. What is Heavy Rain’s cost of retained earnings using the Gordon Model (DDM) approach?

Round the answers to two decimal places in percentage form. 

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Explanation & Answer

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Gordon model  for cost of equity=  latest dividend yield +  the constant  growth rate =  2.95/69.90 + 2.21%= 6.43%

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Anonymous
I was having a hard time with this subject, and this was a great help.

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