Answer:
10.5%
Explanation:
the complete formula for calculating the intrinsic value of a stock with a growing perpetuity is:
stock price₀ = dividend₁ / (cost of equity - growth rate)
stock price₀ = $27.50
dividend₁ = dividend₀ x (1 + growth rate) = $0.90 x 1.07 = $0.963
growth rate = 7%
$27.50 = $0.963 / (cost of equity - 7%)
cost of equity - 7% = $0.963 / $27.50
cost of equity - 7% = 3.5%
cost of equity = 10.5%
