If a firm just paid a dividend equal to $4.00 a share, then for the WACC, in order to find the cost of equity, $4 should be
To find the cost of equity using the dividend approach, you would need to consider the dividend per share and the expected growth rate of dividends.
The dividend approach to calculate the cost of equity is given by the Gordon Growth Model formula:
Cost of Equity = Dividend per Share / Market Price per Share + Dividend Growth Rate
In this case, you mentioned that the firm paid a dividend equal to $4.00 per share. However, in order to proceed with the calculation, we need additional information – specifically, the market price per share and the expected dividend growth rate.
The market price per share is the current market value of the firm's stock. This information can often be found by researching financial websites or by consulting stock market data sources.
The dividend growth rate represents the estimated annual percentage increase in dividends over time. This growth rate can be influenced by various factors such as the firm's historical dividend growth, industry trends, and the company's future growth prospects.
Once you have this additional information, you can substitute it into the formula and solve for the cost of equity.
It is important to note that the cost of equity is just one component of the Weighted Average Cost of Capital (WACC), which is used to determine the required return for a firm's investments. The WACC also includes the cost of debt and the weights of both equity and debt in the capital structure.