ADK Industries Common Shares Sell for $40 Per Share

question 48

Multiple Choice

ADK Industries common shares sell for $40 per share. ADK expects to set their next annual dividend at $1.75 per share. If ADK expects future dividends to grow at 7 percent per year, indefinitely, the current risk-free rate is 4 percent, the expected rate on the market is 11 percent, and the stock has a beta of 1.2, what should be the best estimate of the firm's cost of equity, by taking an average of the 2 estimates?

• A) 11.89 percent
• B) 11.38 percent
• C) 12.40 percent
• D) 12.71 percent

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