Assume a stock has current price $50 and pays yearly dividends of $1.
(a) What is the implied cost of capital? Assume capital markets are perfect.
(b) Now assume that the dividends still pay out in perpetuity,but double inevery second year, i.e. in year 2 it is $2, in year 4 it is $4, andso on. Assume the stock price is still $50. What is the implied cost of capital? Assume capital markets are perfect.