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Dear sir,
I wish to seek advice if the following is correct and acceptable by the examiner.
As far as cost of equity computation which takes into account the market value of shares and the just paid (recent) dividend, the two latter items do not necessarily need to be on per share basis i.e. can be in total respectively.
Mathematically, either in total or on per share basis will give the same answer.
Tq.
In future, if you wish for me to answer then you must ask in the Ask the Tutor Forum. This forum is for students to help each other 🙂
You are correct in saying that you can calculate either in total or per share.
However the cost of equity takes into account expected future dividends. We generally use the current dividend and the past dividend growth rate in order to estimate expected future dividends.
More commonly in Paper P4, instead of using expected dividends we use the capital asset pricing model (the beta of the share) to estimate the cost of equity.I do suggest that you watch our free lectures (and if necessary the relevant free F9 lectures as well, because cost of equity calculations are revision from F9).
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