Question
Download Solution PDFA company's stock sells for Rs. 63. The company pays an annual dividend of Rs. 3 per share and has long established record of increasing its dividend by a context 5% annually. For this company, the cost of equity (Ke) is ______.
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFThe correct answer is 10%
Key Points
- Cost of equity
- It is the return that a company requires for an investment or project, or the return that an individual requires for an equity investment.
- The formula used to calculate the cost of equity is either the dividend capitalization model or the CAPM.
- Here DPS=3 Rs
- CMV=63 Rs
- GRD=0.05
- Putting values in above formula
- =(3/63)=0.05
- 0.0976 ~ 10%
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