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Cost of equity

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Cost of equity

  • This topic has 1 reply, 2 voices, and was last updated 5 years ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
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  • January 1, 2020 at 9:31 pm #556627
    osamasyed123
    Participant
    • Topics: 51
    • Replies: 42
    • ☆☆

    Sir in real life some compnaies like (berkshire hathaway) never pay dividends so there is no relevance of cost of equity in real life
    Can we explain this in an exam question where we have to write about what in our option would be the best level of dividend payable ?

    January 2, 2020 at 6:55 am #556666
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    You are wrong to say that the cost of equity has no relevance in real life because although some companies do not pay dividends, the vast majority do pay dividends.

    As I explain in my free lectures, lower dividends means more is retained which results in an increase in the market value of the shares.

    There is no such thing as a standard ‘best level of dividend’. The dividend policy should be whatever is best for the particular investors in the company – some companies pay high dividends which means little capital growth. Other companies pay lower dividends which means more capital growth.

    Dividend policy is covered in our free lecture notes and the free lectures that go with the notes.

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