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sir its from today’s mcq question as far as i remember ..the q says
Dividend to be paid 55% of earnings.EPS is 80c.cum div share price $4.6 ,return on equity is 20% ..equity beta 1.5(cant xactly remember ).. what is the cost of equity ?I can’t help because I have not seen the exact question (if the return on equity is 20% then it would appear that the cost of equity is 20%).
the question was weird .. it had no option as 20% .. actually mcqs was bit taugh.. bt written was good.
The question is:
The company’s planned dividend payout ratio is 55%. EPS is 80c. cum div share price $4.6 ,return on equity is 20% ..equity beta 1.5. what is the cost of equity?I got 20.5%, can you help with the correct solution Mr Moffat. This is what I did:
g= 0.45*0.2=0.09 (retention ratio * roe)
share price ex div= $4.60-$0.80*55%=$4.16cost of equity using dgm=0.8*0.55*1.09/4.16+0.09=20.5%
It is pointless me commenting on individual questions from an exam that I have not seen.
Your arithmetic seems correct. But with more information the beta factor could be used.
@ematete2005 said:
The question is:
The company’s planned dividend payout ratio is 55%. EPS is 80c. cum div share price $4.6 ,return on equity is 20% ..equity beta 1.5. what is the cost of equity?I got 20.5%, can you help with the correct solution Mr Moffat. This is what I did:
g= 0.45*0.2=0.09 (retention ratio * roe)
share price ex div= $4.60-$0.80*55%=$4.16cost of equity using dgm=0.8*0.55*1.09/4.16+0.09=20.5%
Was its answer was A)
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