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Ecolap Inc. (ECL) recently paid a $0.86 dividend. The dividend is expected to grow at a...

Ecolap Inc. (ECL) recently paid a $0.86 dividend. The dividend is expected to grow at a 15.08 percent rate. At a current stock price of $52.42, what return are shareholders expecting? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

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Answer #1

Accoridng to the constant dividend growth model

Share Price = D1 / ( Ke - G)

Where, D1 = Dividend for next period

Ke = Cost of equity

G = Growth

52.42 = 0.86 * ( 1 + 15.08%) / ( Ke - 15.08%)

52.42 = 0.989688 / (Ke -  15.08%)

52.42 * (Ke -  15.08%) = 0.989688

(Ke -  15.08%) = 0.989688/52.42

(Ke -  15.08%) =0.01887996947

Ke = 0.01887996947 + 0.1508

Ke = 0.16967996947

In percentage, Cost of equity = 16.97% [Rounded to two decimals]

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