Judy's boutique just paid an annual dividend of $2. 29 on its common stock. The firm increases its dividend by 3. 10 percent annually. What is the company's cost of equity if the current stock price is $38. 20 per share?.

The discounted present value of future dividends is used to price a stock under the dividend growth model, which posits that a firm's dividend will increase at a steady pace eternally. According to this model, the dividend yield plus the dividend growth rate can be added to get the needed return on a stock.

The dividend growth model can be used to provide an answer. The model suggests that the following formula might be used to calculate the necessary requirement on a stock:

Required return = last dividend X (1 + dividend growth rate) / current stock price + growth rate of a dividend

The most recent dividend in this case is 2.29, the dividend growth rate is 3.10, and the stock price is at 38.20. Making use of the model

Required return = 2.29 X (1 + 3.10%) / 38.20 + 3.10%

=2.29 X 1.031 / 38.20 + 0.031

=2.36099 / 28.231

= 0.0836

= 8.36%

Learn more about dividend growth model: https://brainly.com/question/18650705

#SPJ4