Question

5. Current market price of equity shares of Jack Ltd. is Rs.120. The company has issued new equity
shares of Rs.30 each at Rs.120 and the cost of its flotation is Rs.1.50 per share. The gross dividends per
share over the last six years have been Rs.3.15, Rs.3.3, Rs.3.48, Rs.3.63, Rs.3.81 and Rs.4.02. It is
expected to maintain the fixed dividend payout ratio in the future. Applicable tax rate is 35%. Cost of
equity of Jack Ltd. is -
(A) 0.856
(B) 0.0856
(C) 0.0865
D) 0.0586​

Answer 1

Answer:

(B) 0.0856

Explanation:

5. Current market price of equity shares of Jack Ltd. is Rs.120. The company has issued new equity

shares of Rs.30 each at Rs.120 and the cost of its flotation is Rs.1.50 per share. The gross dividends per

share over the last six years have been Rs.3.15, Rs.3.3, Rs.3.48, Rs.3.63, Rs.3.81 and Rs.4.02. It is

expected to maintain the fixed dividend payout ratio in the future. Applicable tax rate is 35%. Cost of

equity of Jack Ltd. is -

(A) 0.856

(B) 0.0856

(C) 0.0865

D) 0.0586