g = 1 = - 1 – = 1 = 0.149 = 0.15 – = 15% Or Ke = + g ∴ = + 0.15 = 0.24 = 24% EXAMPLE 2: The following are the data in respect of simple” Plc: “stupid Market price per share N7 Dividend per share N0.50 Growth rate 6% Issue cost N0.25 Underwriting of new issue N0.50 Required You are required to calculate Cost of equity Cost of retained earnings Solution Determination of Ke of new ordinary shares Ke = + g = + 0.06
g = – 1 = - 1 = – 1 = 0.149 = 0.15 = 15% Or ∴ Ke = + g = + 0.15 = 0.24 = 24% EXAMPLE 2: The following are the data in respect of “stupid simple” Plc: Market price per share N7 Dividend per share N0.50 Growth rate 6% Issue cost N0.25 Underwriting of new issue N0.50 Required You are required to calculate Cost of equity Cost of retained earnings Solution Determination of Ke of new ordinary shares Ke = + g = + 0.06
cost_of_capital.docx