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Cost of Equity

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Microchip's common stock pays a dividend of $2.55 per share. The current market price per share is $16, and new shares can be sold to net $12 per share. Microchip's dividends are $2.55 this year and were $2.03 three years ago.

Calculate the cost of Equity

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Solution Summary

The solution explains how to calculate the cost of equity using the dividend discount model.

Solution Preview

We can use the compound interest formula to calculate the growth rate. In three years the dividend has increased from 2.03 to 2.55. This can be thought ...

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