Answer:
15%
Explanation:
Use Dividend discount model to find the required return of equity or cost of equity capital;
Return r formula;
[tex]=\frac{D1}{P0} +g[/tex]
whereby; D1 = Next year's dividend = $2.10
P0 = Current price = $17.50
Growth rate; g = 3% or 0.03 as a decimal
Next, plug in the numbers to the formula above to calculate the cost of equity;
r [tex]=\frac{2.10}{17.50} +0.03\\ \\ =0.12+ 0.03[/tex]
r = 0.15 or 15%
Therefore, cost of equity is 15%
