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Answers

CHAPTER 2 – COST OF CAPITAL

Example 2.1

40
K e = . = 12.5%
360 – 40

Example 2.2

40 × 1.07
K e = . + 0.07 = 20.4%
360 – 40

Example 2.3

Answer = 14.3%

g = ((17/10)^1/6) – 1 = 9.25%

NB. To the power of 1/6 is equal to the 6th root.

Cost of equity

k e = (17 × 1.0925)/365 ) + 0.0925 = 0.1434= 14.3%

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