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Assume that a company’s beginning-of-period price is $10 per common share, its dividends are $0.55 per share, and its end-of-period price is $10.50 per common share. What is the company’s expected cost of equity capital?

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Answer: 10.5%

Explanation:

The expected cost of equity capital is calculated by the formula;

= (Ending value of common share - Beginning value + Dividends) / Beginning value

= (10.50 - 10 + 0.55) / 10

= 10.5%

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