Page 45 - 5.2 i. Manac Finance ITC Summarised Notes
P. 45

COST OF CAPITAL




            Ordinary equity (ke)








            PV =         D¹
                      ke - g




            ∴ ke – g = D¹
                                                   PV must be ex
                            PV                       dividend




            ∴ke = D¹             + g

                         PV

            Example:

            Company X is currently paying a dividend of R4 per share with a growth of 7%. The shares are currently
            quoted at R35 each. Calculate the cost of equity.



                ke = 4 + 7% + 0.07

                        35

                    = 19.2%

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