Hi Dear Tutor
dividend pay 66cents =0.66
dividend growth 3%=0.03
ex-dividend market value 8.30
the cost of equity 12%=0.12
the cost of equity is given in the question .
is above given cost of equity in the question derived from the following way:
0.66*(1+0.03)/8.30+0.03 equal to 0.1119 =11.19%
what are differences between 8.30 and 7.55?
0.66*(1+0.03)/0.12-0.03=7.55
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9 december 2010 question 4(NN co) part a 1
By clarifying it a bit more, has the cost of equiy 11.19% just rounded and recorded as 12%?
the cost of equity 12%=0.12
the cost of equity is given in the question .
is above given cost of equity in the question derived from the following way:
0.66*(1+0.03)/8.30+0.03 equal to 0.1119 =11.19%
5y ago#2In theory the market value should be $7.55. However in practice it is investors who determine the actual market value based on their future expectations and the actual market value is $8.30.
but here cost of equity (12%) then calculated by using market value
5y ago#4Who says that it is calculated on market value? It could, for example, have been calculated using CAPM.
Where the 12% comes from is completely irrelevant - you are told it in the question and you are not asked to explain why it is 12%.
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