Currently, the market price of an ABC company share is ₹125, and the company plans to pay a dividend of…
The cost of equity capital is 12%. Using the dividend growth formula, \(k_e\) \(= D_1 / P_0 + g\) \(= 5 / 125 + 0.08\) \(= 0.04 + 0.08\) \(= 0.12\), or 12%, where the…
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Currently, the market price of an ABC company share is ₹125, and the company plans to pay a dividend of ₹5 per share. If the growth in dividend is 8% per annum, the cost of equity capital will be
Answer and explanation
Correct answer D
The cost of equity capital is 12%. Using the dividend growth formula, , or 12%, where the planned dividend of ₹5 on a ₹125 share price gives a 4% dividend yield plus the 8% annual dividend growth rate.
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Andhra Pradesh SET (APSET)