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Cost of Equity Questions

1. Blakeslee Machinery announced this morning that their next annual dividend will be increased to $2.10 a share and that future dividends will be lowered by 2 percent per year. The stock price after the announcement settled at $16 a share. What is the firm's cost of equity?
a. .33%
b. 9.33%
c. 11.13%
d. 13.33%
e. 15.13%

2. Baxter Industries paid their annual dividend of $1.34 on their common stock. The company predicts that the dividend will increase by 3.5 percent each year indefinitely. What is the firm's cost of equity if the stock is selling for $43 a share?
a. 4.89%
b. 6.62%
c. 6.73%
d. 7.12%
e. 7.38%

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