Homework Answers
COST OF EQUITY
Cost of Equity=(CMV/DPS x (1- F))+GRD
= (2/40(1-0.015)) + 4 %
= 4.925 + 4% = 8.925%
where
:DPS=dividends per share, for next year
CMV=current market value of stock
GRD=growth rate of dividends
F = ratio of flotation cost
REQUIRED RATE OF RETURN
RRR=(Expected dividend payment/Stock prices) +Forecasted dividend growth rate
= (2/40) + 4 %
= 5 % + 4 % = 9 %
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