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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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