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Progressive Plc has just paid a dividend of 40 pence per share. Four years ago the dividend was 6 pence per share. What is the estimated cost of equity if the share price is £6.60? [xx%]
The forums are not here simply for you to get other people to solve your questions.
You presumably have an answer in the same book as you found the question (if not then you should be using a different book) and so you should say what problem you are having with it!
I do suggest you watch the free lectures on calculating the cost of equity – either the P4 lectures, or the F9 lectures (because this is revision of F9).
6(1+g)’4=40
G=0.6068
6.6=40(1.6068)/k-0.6068
K=10.34%
Please correct me if i am wrongYou are wrong because you have the market value in $’s and the dividend in cents.
It should be: Ke = ((40 x 1.6068) / 660 ) + 0.6068 = 0.704 (or 70.4%)
A cost of equity that high is ridiculous. Where the original question came from I have no idea, but it is certainly not typical of a real exam question 🙂
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