Page 403 - F2 Integrated Workbook STUDENT 2019

Answers

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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