calculate the cost of equity

[rbcc]

Hi,
I'm having trouble with this question

calculate the cost of equity given the following information:
current dividend=3
payout ratio=0.5
ROE:12
the current market price of the stock is $24

g=(1-0.5)(0.12)=0.06

3*(1.06)=3.18=D1

3.18/k-0.06=24 so k=0.1925 but the solution manual uses the $3 (D0?) dividend in their solutions 3/k-0.06=24 k=0.185

Thanks
rbcc

 

[rbcc]

yes we are using the Gordon Growth Model. This is the way the dividend is being described in the problem. since it says "current dividend" I think the solution manual is incorrect.