1. Underestimated Inc.’s common shares currently sell for $40 each. The firm’s management believes that its shares should really sell for $47 each. The firm just paid an annual dividend of $2 per share and management expects those dividends to increase by 4 percent per year forever (and this is common knowledge to the market).
What is the current cost of common equity for the firm? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)
The current cost of common equity for the firm= .........%
2. Whitewall Tire Co. just paid an annual dividend of $1.45 on its common shares. If Whitewall is expected to increase its annual dividend by 6.20 percent per year into the foreseeable future and the current price of Whitewall’s common shares is $19.16, what is the cost of common stock for Whitewall? (Round answer to 2 decimal places, e.g. 15.25%.)
Cost of common equity= ....%