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Calculate company cost of equity

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Question - You are analysing the performance of a UK based company. You are given the following information relating to the company's financial statements:

Net profit: E500 million

Number of ordinary shares: 80 million

You are also provided with the following relevant information to help analyse the company:

Quoted share price: E2

P/E ratio (forward): 15

Variance of returns on London Stock Exchange: 0.5

The covariance of the company's stock returns with the returns of London Stock Exchange: 0.98

Annual rate of return on UK risk-free treasury stock: 4.0%

Anticipated annual return on entire UK stock market: 6.0%

Required -

(a) Calculate the expected earnings growth rate of the company using the information above.

(b) Calculate Company's cost of equity.

Reference no: EM133133641

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