P$14-1$ Calculating Cost of Equity $[$LO$1]$

The Drogon Company just issued a dividend of $$2\mathrm{.}26$ per share on its common stock.

The company is expected to maintain a constant $5$ percent growth rate in its dividends

indefinitely. If the stock sells for $$40$ a share, what is the company's cost of equity?

Multiple Choice

$6\mathrm{.}06\%$

$11\mathrm{.}48\%$

$10\mathrm{.}93\%$

$10\mathrm{.}39\%$

$10\mathrm{.}65\%$