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Basic Question 5 of 16
WTRS Inc.'s common stock is currently selling for $66.25 per share. You expect the next dividend to be $5.30 per share. If the firm has a dividend growth rate of 4%, what is its cost of equity?
B. 13.9%
C. 14.1%
A. 12.0%
B. 13.9%
C. 14.1%
User Contributed Comments 11
| User | Comment |
|---|---|
| Arif99 | =((5.30/66.25)+.04)*100 |
| Indira | 66.25=5.30/(k-0.04)=>12% |
| Nikita | how are you getting 12% from the above 66.25 = 5.3/(k-0.04) = 0.04 |
| merrick | 5.3/66.25=.08 .08+.04=.12 |
| johntan1979 | By this question, you should get it right already (assuming you did the previous 9 questions). Otherwise, lots of luck to you for the actual exam. |
| quanttrader | if you can't get this, then sorry to say you're screwed! |
| jonan203 | nikita, HP12c like this: 5.3 <enter><enter> .04 <enter> 66.25 <times><plus> 66.25 <divide> = 12% |
| praj24 | I'm screwed! Back to LOS... I'll be back! |
| praj24 | ^^^ this fool needs to read the LOS next time! |
| Inaganti6 | @johntan1979 You kept making superb comments all through most of the problems. Yet, the entire Equity section accounts for ~ 10% on the exam. I got this question right but the lapse in your judgement is surprising and in some ways disappointing. |
| workinehg | Assuming the stock is valued fairly? What if the stock is overvalued/undervalued. The formula is to calculate the intrinsic value and not market price. |
Your review questions and global ranking system were so helpful.
Lina
Learning Outcome Statements
explain the rationale for using present value models to value equity and describe the dividend discount and free-cash-flow-to-equity models
calculate and interpret the intrinsic value of an equity security based on the Gordon (constant) growth dividend discount model or a two-stage dividend discount model, as appropriate
identify characteristics of companies for which the constant growth or a multistage dividend discount model is appropriate
explain advantages and disadvantages of each category of valuation model
CFA® 2025 Level I Curriculum, Volume 3, Module 8.