Question
A company’s share is currently quoted at a market
price of ₹120 per share. The company is expected to pay a dividend of ₹12 per share in the next year, and dividends are anticipated to grow at a constant rate of 5% per annum indefinitely. Using the Gordon Growth Model (Dividend Discount Model), calculate the cost of equity (Ke) for the company.Solution
Ke = (D1 / P0) + g = (12 / 120) + 0.05 = 0.10 + 0.05 = 15%.
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