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Cost of capital nov 2016,ipc question
"Market price of equity -40 per share and it is expected that a dividend of 4 per share would be declared.The DPS is expected to grow @ 8% every year"
Calculate Ke
Replies (3)
Ke = (DPS / Price*100) + Growth Rate
Ke = (4/40*-100)+8
Ke = 10+8
Ke = 18%
I think Rs 4 given for DPS is not D0 but it's D1. because the words used in the problem are "it is expected that a dividend of Rs 4 would be declared", so it should be treated as D1
Yes.In my view too it should be treated as D1 .But ICAI suggested answers it has been treated as D0.
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