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Co. Shalom has just declared and paid dividend at GHC200 per share and this is expected to grow at 10% per annum forever. The current share price of v

Co. Shalom has just declared and paid dividend at GHC200 per share and this is expected to grow at 10% per annum forever. The current share price of the company is GH¢1,200. What is the company's cost of equity?

a. 20.4%

b. 16.5%

c. 15.9%

d. 28.3%

Solutions

Expert Solution

The correct option is D i.e. 28.3%

 

D0 = 200

Growth Rate, g = 10%

D1 = D0*(1+g)
D1 = 200*(1+0.10)
D1 = 220

 

Cost of Equity= D1/P0 + g
Cost of Equity = 220 / 1,200 + 0.10
Cost of Equity = 0.1833 + 0.10

 

Cost of Equity = 0.2833 or 28.3%

The correct option is D i.e. 28.3%

Junaid answered 2 years ago
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