Trampolim SA has just paid a dividend of $4.20 per share. The company's dividend is expected to grow at a constant rate of 7% indefinitely. If its shares are trading at $96.00, what is the company's cost of equity?

The cost of equity, also known as the required rate of return, can be calculated using the Gordon Growth Model. The formula for the Gordon Growth Model is: Cost of Equity = Dividend / Current Stock Price + Dividend Growth Rate Given: Dividend = $4.20 per share Current Stock Price = $96.00 Dividend Growth Rate = 7% (or 0.07 as a decimal) Plugging in the values into the formula: Cost of Equity = $4.20 / $96.00 + 0.07 Calculating the cost of equity: Cost of Equity = 0.04375 + 0.07 Cost of Equity = 0.11375 Therefore, the company's cost of equity is approximately 11.375% or 0.11375 as a decimal.