QUESTION FOUR The details of dividends paid by Cool Ltd. on its existing equity shares of $10 each for the past six years is given below: Year 2004 2005 2006 2007 2008 2009 Dividend per share 1.05 1.10 1.l6 1.21 1.27 1.34 The current market price of the equity shares is $40. It is expected to maintain the fixed dividend payout ratio in the future. The company has issued new equity shares of $10 each and the cost of flotation is $0.50 per share. The expected dividend to be declared for the current year is $1.40. D1 NP = (K. – g) Where NP represents Net Proceeds from shares K, represents cost of equity capital g represents a constant growth rate Di represents annual dividend per share in the next period Do (1+g) Using the information above calculate the cost of equity capital.
QUESTION FOUR The details of dividends paid by Cool Ltd. on its existing equity shares of $10 each for the past six years is given below: Year 2004 2005 2006 2007 2008 2009 Dividend per share 1.05 1.10 1.l6 1.21 1.27 1.34 The current market price of the equity shares is $40. It is expected to maintain the fixed dividend payout ratio in the future. The company has issued new equity shares of $10 each and the cost of flotation is $0.50 per share. The expected dividend to be declared for the current year is $1.40. D1 NP = (K. – g) Where NP represents Net Proceeds from shares K, represents cost of equity capital g represents a constant growth rate Di represents annual dividend per share in the next period Do (1+g) Using the information above calculate the cost of equity capital.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:QUESTION FOUR
The details of dividends paid by Cool Ltd. on its existing equity shares of $10 each for the past
six years is given below:
Year
2004 2005 2006 2007 2008 2009
Dividend per share
1.05 1.10 1.l6 1.21
1.27 1.34
The current market price of the equity shares is $40. It is expected to maintain the fixed
dividend payout ratio in the future. The company has issued new equity shares of $10
each and the cost of flotation is $0.50 per share. The expected dividend to be declared
for the current year is $1.40.
D1
NP =
(K. – g)
Where
NP represents Net Proceeds from shares
K, represents cost of equity capital
g represents a constant growth rate
Di represents annual dividend per share in the next period Do (1+g)
Using the information above calculate the cost of equity capital.
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