ADK Industries Common Shares Sell for $40 Per Share

question 117

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% per year, indefinitely, the current risk-free rate is 4%, the expected rate on the market is 11%, and the stock has a beta of 1.2, what should be the best estimate of the firm's cost of equity?

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

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