CFA Practice Question
An analyst gathered the following information about a manufacturing company:
Expected cash dividends (per share) one year from today: $6.00
Expected growth rate: 7%.
Common stock (current market price per share): $72.00.
Company tax rate: 34%.
Expected cash dividends (per share) one year from today: $6.00
Expected growth rate: 7%.
Common stock (current market price per share): $72.00.
Company tax rate: 34%.
The company's after-tax cost of retained earnings is closest to:
A. 15.33%.
B. 10.12%.
C. 14.79%.
Explanation: No tax adjustment is made because dividends paid on common stock are not tax deductible: ($6.00/$72.00) + 7% = 15.33%.
User Contributed Comments 2
| User | Comment |
|---|---|
| Mariana80 | Why does this mix next year's dividend with the current year's price? |
| Procbaby1 | r=(D1/P0)+g |