In: Finance
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%
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%