Expected rate of return from the ordinary shares

Bert plc is an equity financed mountain bicycle manufacturing company. It has 40 million ordinary shares in issue and a market capitalisation of $78.4 million (ex-div). Extracts from its financial statements for the year to 31 August 2010 are shown below:
$’000
Profit before taxation 17,014
Less: Corporation tax at 28% (4,764)
Profit after taxation 12,250

The dividend payout ratio was 100%. Annual earnings and the dividend payout ratio have not changed over the last few years and are expected to continue at present levels for the foreseeable future.

Which ONE of the following is the expected rate of return from the ordinary shares?

a 21.7%
b 15.6%
c 6.4%
d 4.6%

Answer – B

Bert’s cost of capital: Dividends / market capitalisation = $40.78m/$25.12m = 15.625%. It is the answer given in the illustration but I don’t understand the calculation. Could you please explain?