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Hudaverdi Ltd pay current dividends of $0.75 per share with these dividends expected to grow at...

Hudaverdi Ltd pay current dividends of $0.75 per share with these dividends expected to grow at a rate of 4.7% per year in perpetuity. Hudaverdi Ltd shares are currently trading at $10.68 per share. What is the cost of equity finance for Hudaverdi Ltd? Give your answer as a percentage per annum to 1 decimal place.

Cost of equity =  % pa

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Answer #1

=> It is given that current dividends = $0.75 per share, growth rate = 4.7% and current price per share = $10.68

=> According to Gordon's dividend growth model:

, Where P0 is the current value of the share , D0 Is the current value of the dividend per share, rE is the cost of equity and g is the growth rate

=> By rearranging the formula, we can find the value of cost of equity

=> Now plug the values into the formula:

=> Therefore the cost of equity is 12.1%

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