Answer Happy

(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 $41.83 a share; it expects to pay an annual cash dividend of $2.05 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 3% and the market risk premium is 4%, what must the firm's beta be to warrant an expected rate of return 17% on the firm's stock? .. a. The constant annual rate of growth in dividends is %. (Round to two decimal places.) b. The firm's beta is (Round to one decimal place.)