Using the Constant Growth Model, a Firm's Expected (D₁) Dividend

question 65

Multiple Choice

Using the constant growth model, a firm's expected (D₁) dividend yield is 4% of the stock price, and its growth rate is 5%. If the tax rate is .35%, what is the firm's cost of equity?

• A) 10%
• B) 6.65%
• C) 9.0%
• D) More information is required

---

Definitions:

Nonprogrammed

Decisions or actions that are made in response to novel, unpredictable, or unique situations, requiring customized solutions.

Problem-solving

The process of identifying a challenge, difficulty, or discrepancy and applying logical reasoning or creativity to find a solution.

Decision-making

The cognitive process of making a choice among multiple options or courses of action.

Nonprogrammed

Decisions or actions that are made to address unique, non-recurring situations that require specific handling.