Answer:
Cost of Equity 12.9%
Explanation:
Cost of Equity is the rate of return required by the equity holders of the company. It is rate which is associated with the equity of the company. This can be calculated by using Discounted cash flow method of valuation of equity because this rate is used to discount the expected future dividend of related to equity.
Value of Equity = Dividend paid / ( rate of return - growth rate )
P0 = D1 / ( r - g )
$22.5 = $1.45 / ( r - 6.5%)
r - 6.5% = $1.45 / $22.5
r - 0.065 = 0.064
r = 0.064 + 0.065
r = 12.9%
