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Chapter 20
Example 2.4
Answer = 18.86%
Growth rate
g = r × b = 10% × 40% = 4%
NB. 60% of the profits are paid as dividends meaning 40% of the profit is
retained.
Cost of equity
k e = [(d 0 × (1 + g)/P 0] + g
= [0.75 × 1.04/(6 – 0.75)] + 0.04 = 18.86%
Example 2.5
12(1 –0 .22)
K d = . = 9.75%
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