Estimating Cost of Equity Using DDM

A company is evaluating its cost of equity, which is a fundamental component of its overall cost of capital. To estimate the cost of equity, the company considers various approaches, including the Dividend Discount Model (DDM) and the Capital Asset Pricing Model (CAPM). The company’s stock is currently trading at $50 per share, and it is expected to pay a dividend of $2 per share next year, which is projected to grow at a rate of 5% per year indefinitely.

Using the DDM, what is the estimated cost of equity for the company?