The cost of equity can be estimated using the dividend discount model. We can rearrange the model to solve for $r($the required return, which is also the cost of equity$).$ When we do that, the equation becomes:

$r=(D\frac{1}{P}0)+g$

Where $D1$ is the upcoming dividend; $PO$ is the price today in the market; and $g$ is the growth rate as a decimal Practice using this formula and calculating the cost of equity $(r)$ :

Alderaan Incorporated has a current stock price of $$42\mathrm{.}85.$ The last dividend was at $2\mathrm{.}80,$ and is expected to grow at a $4\%$ constant rate. What is the firm's cost of common equity? Give your answer as a percentage, rounded to two decimal places $($example: $9\mathrm{.}58\%$ as $9\mathrm{.}58)$