a company has earnings available to equity shareholders RS 500000. It has capital rs 5000000 face value of RS 100 each. Compute cost of equity (assuming 100% dividend payout ratio)
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Face value of each share = 100
Dividend payout ratio = 100%
Return on Equity
= Face value × Dividend payout ratio
= 100 ×100%
=100 Per share
sustainable growth rate
= ( 1 - dividend payout ratio ) × return on equity
= (1- 100%) × 100%
=0
Cost of equity is the minimum rate of return promised or need to be net by the company to its investors
= (Next year dividend / current market price ) + growth rate
= 100/ 100 + 0
= 1
Dividend payout ratio = 100%
Return on Equity
= Face value × Dividend payout ratio
= 100 ×100%
=100 Per share
sustainable growth rate
= ( 1 - dividend payout ratio ) × return on equity
= (1- 100%) × 100%
=0
Cost of equity is the minimum rate of return promised or need to be net by the company to its investors
= (Next year dividend / current market price ) + growth rate
= 100/ 100 + 0
= 1
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