Rosie’s Grill has a beta of 1.2, a stock price of $26 and an expected

Rosie’s Grill has a beta of 1.2, a stock price of $26 and an expected annual dividend of $1.30 a share which is to be paid next month. The dividend growth rate is 4 percent. The market has a 10 percent rate of return and a risk premium of 6 percent.

What is the average expected cost of equity for Rosie’s Grill?
A) 9.20 percent
B) 9.70 percent
C) 10.10 percent
D) 10.30 percent
E) 11.40 percent

ANSWER

C