Cost of equity

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September 8, 2020 at 4:52 pm #584154
afraansar
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IPA co is about to pay $0.50 dividend on each ordinary share. EPS was $1.50.
Net assets per share is $6. Current share price is $4.50.
What is the cost of equity?

I don’t understand how the growth is worked out.
G = rb
r = rate of return co can earn re-investment (EPS/Net asset per share)
b= proportion of retained earnings

Could you explain how r and b is worked out.
Thank you in advance!
September 9, 2020 at 7:50 am #584281
John Moffat
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b = (1.50 – 0.50) / 1.50 = 0.66
r = 1.50 / 6 = 0.25

g = 0.25 x 0.66 = 0.165

For more, you must watch my free lectures on this.
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