Your company share is quoted in the market at Rs. 40 currently. The company pays a dividend of Rs. 5 per share and the investors market expects a growth rate of 7.5% per year: (i) Compute the company’s equity cost of capital. (ii) If the anticipated growth rate is 10% p.a. Calculate the indicated market price per share. (iii) If the company’s cost of capital is 15% and the anticipated growth rate is 10% p.a. Calculate the indicated market price if the dividend of Rs. 5 per share is to be maintained.

Answer rating: 100% (QA)

I The equity cost of capital can be calculated using the Gordon Growth Model formula as follows Equi... View the full answer