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Cost of common equity

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The earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow at 7 percent per year in the future. Carpetto's common stock sells for $23 per share, its last dividend was $2.00, and it will pay a dividend of $2.14 at the end of the current year. Using the DCF approach, what is the cost of common equity?

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Solution Summary

This provide the steps of calculation of cost of common equity using DCF approach

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Cost of common equity= Estimated Dividend/Price +Growth rate
=2.14/23+7%
=0.163043478 or 16.34%=Answer

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