In March of this past year, Manchester Electric (an electrical supply company operating throughout the southeastern United

Question:

In March of this past year, Manchester Electric (an electrical supply company operating throughout the southeastern United States and a publicly held company) was evaluating the cost of equity capital for the firm. The firm's shares are selling for $45.00; it expects to pay an annual cash dividend of $4.50 a share next year, and the firm's investors anticipate an annual rate of return of 18 percent.

a. If the firm is expected to provide a constant annual rate of growth in dividends, what rate of growth must the firm experience?

b. If the risk-free rate of interest is 3 percent and the market risk premium is 6 percent, what must the firm's beta be to warrant an 18 percent expected rate of return on the firm's stock?

Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...