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  • 0ff28practice Questions

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    Divya Vishwanadh
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    The document provides a practice question to calculate the cost of equity for XYZ Ltd. based on its earnings per share, dividend payout ratio, growth rate, current market price per share, and floatation cost. The solution shows the calculations to find the current dividend, next year's dividend, deduct the floatation cost from the market price, and use the dividend growth model to determine the cost of equity is 21.15%.

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    0ff28Practice Questions

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    The document provides a practice question to calculate the cost of equity for XYZ Ltd. based on its earnings per share, dividend payout ratio, growth rate, current market price per share, and floatation cost. The solution shows the calculations to find the current dividend, next year's dividend, deduct the floatation cost from the market price, and use the dividend growth model to determine the cost of equity is 21.15%.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    12 views1 page

    0ff28practice Questions

    Uploaded by

    Divya Vishwanadh
    The document provides a practice question to calculate the cost of equity for XYZ Ltd. based on its earnings per share, dividend payout ratio, growth rate, current market price per share, and floatation cost. The solution shows the calculations to find the current dividend, next year's dividend, deduct the floatation cost from the market price, and use the dividend growth model to determine the cost of equity is 21.15%.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    Practice Questions

    1. Calculate the cost of equity for XYZ Ltd.

    • EPS for the current year is Rs.20

    • Dividend payout ratio is 50%

    • Growth rate is 5%.

    • Current Market price per share is Rs.70

    • Floatation cost is Rs.5 per share.

    Solution:

    Current Dividend = 50% * 20= 10

    Dividend next year= 10(1+ .05) =10.5

    DIV1
    ke = +g
    P0
    P= 70-5= 65 as the flotation cost has to be deducted from the market price.

    Cost of equity capital= (10.5/ 65) + .05= .2115= 21.15%

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