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Please tell me how the answer could be 13%?

Forums › ACCA Forums › ACCA FM Financial Management Forums › Please tell me how the answer could be 13%?

  • This topic has 2 replies, 2 voices, and was last updated 13 years ago by coco78.
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  • October 25, 2011 at 7:10 pm #50222
    coco78
    Member
    • Topics: 8
    • Replies: 4
    • ☆

    The market value of Delta’s shares are $2 and the last dividend paid was 25c. The annual growth rate of dividends is expected to be 5%. What is the cost of equity capital?

    I answered it as

    25(1.05)/200+0.05= 18.25%

    October 25, 2011 at 7:37 pm #89084
    Pudge
    Member
    • Topics: 2
    • Replies: 10
    • ☆

    The issue is Po-g therefore should be 200-5%…try again with this and this should give you 13%

    October 27, 2011 at 6:15 pm #89085
    coco78
    Member
    • Topics: 8
    • Replies: 4
    • ☆

    Thank you kipudge.

    Got it now, 25/190 = 13%

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