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Sir theoretical value of securities
a company has in issue $1 share
just paid a dividend 50 c
required return 10%share price is $5
can I say required return is cost of capital = 10% ?
Re is therefore what the company has to pay the shareholders = ke cost of capital (same thing)You can say that the cost of equity is 10%. It is the same as the return required by shareholders.
thanks sir
and explain me this formula
Shareholders return Re /ke = Dividend + capital gain or loss ÷ share price (previous year)
You have never seen that formula anywhere because it is not Ke/Re !!!
This formula gives the shareholders return over one year (which is not the same thing).
Over the year, the benefit they have had is the dividend for that year + the capital gain or loss over that year.
Therefore the return over the year was the benefit (as above) as a percentage of the market value at the start of the year.
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