?(Growth rate in stock dividends and the cost of equity?) 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 $ 56.23 a? share; it expects to pay an annual cash dividend of $ 2.94 a share next? year, and the? firm's investors anticipate an annual rate of return of 17 %
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 2% and the market risk premium is 6%, what must the? firm's beta be to warrant an expected rate of return 17% on the? firm's stock?