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QUESTION - COST OF CAPITAL
A Company is contemplating an issue of new equity shares. The firm's equity shares are currently selling at $ 125 a share. The historical pattern of dividend payments per share, for the last 5 years is given:
Year
Dividend ($)
1
10.70
2
11.45
3
12.25
4
13.11
5
14.03
The floatation costs are expected to be 3% of current selling price of the shares. You are required to determine the following:
(i) Growth rate in dividends
(ii) Cost of equity capital, assuming growth rate determined under situation (i) continues for ever.
(iii) Cost of new equity shares.
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