Answer:
10.78%
Explanation:
Absolute Zero Co. just issued a dividend of $2.65 per share on its common stock
The growth rate is 5.5%
= 5.5/100
= 0.055
The price of the stock is $53
The first step is to calculate the estimated dividend payment
Div1= Div0×(1+g)
= 2.65×(1+0.055)
= 2 65(1.055)
= $2.7957
Therefore, the company's common cost of equity can be calculated using the constant growth dividend discount model
Po= Div1/r-g
Where Po= stock price, Div1= estimated dividend, r= required rate of return, g= growth rate
53= 2.7957/r-0.055
r-0.055= 0.0528
r= 0.0528+0.055
r= 0.1078×100
r= 10.78%
Hence the company's cost of equity is 10.78%
