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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. |
I am happy to say that I passed! Your study notes certainly helped prepare me for what was the most difficult exam I had ever taken.
Andrea Schildbach
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® 2024 Level I Curriculum, Volume 3, Module 8.