Question

je has a current stock price of $2.15 and is expected to sell for $2.26 in one years time, immiditely after it pags a dividend of $0.37. which of the following is closest to JEs equity cost of capital?

Jumbuck XIUDU . ILIJUN OA. 11.17% O B. 27.91% O C. 13.4% OD. 22.33% IEEE EEE

Answer 1

Solution :-

The Value of Current Share Price = $2.15

The Value of Share after one year after excluding dividend = $2.26

Therefore as per the information

$2.26 = $2.15*(1 + ke) - $0.37

$2.15* (1 + ke) = $2.63

( 1 + ke ) = 1.2233

ke = 0.2233 = 22.33%

Therefore the cost of equity = 22.33%

Therefore the correct answer is (D)

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