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Blue plc is equity financed by 500,000 50c ordinary shares. Current market value is 30c and the annual dividend of $12,000 is about to be paid.
Calculate Blue’s cost of capital
24/30
sir why the result is 24/30-24 ?The dividend per share is $0.024
$0.30 is the cum div market value (because they are about to pay a dividend) and so the ex div market value is $0.30 – $0.024 = $0.276
Therefore the cost of equity = 0.024 / 0.276 = 8.7%
I do suggest that you watch our free lectures on this because the relationship between cum and ex div is fully explained.
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