Constant-growth dividend discount model

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Reference no: EM131924002

1. A firm pays a current dividend of $1, which is expected to grow at a rate of 3% indefinitely. If the current value of the firm’s shares is $103, what is the required return applicable to the investment based on the constant-growth dividend discount model (DDM)?

2. Teall Development Company hired you as a consultant to help them estimate its cost of capital. You have been provided with the following data: D₁ = $1.45; P₀ = $22.50; FC=8% and g = 6.50% (constant). Based on the DCF approach, what is the cost of issuing common stock?

Reference no: EM131924002

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