CA Inter P6 · Chapter 4 · Question 4 of 10
The equity shares of Nirmal Ltd are quoted at ₹ 80. The company has just paid a dividend of ₹ 4 per share, and dividends are expected to grow at 6% per annum indefinitely. Using the dividend growth model, the cost of equity is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) 11.3%
Explanation
D1 = D0 x (1 + g) = 4 x 1.06 = ₹ 4.24. Ke = D1/P0 + g = 4.24/80 + 0.06 = 0.053 + 0.06 = 11.3%. Using D0 instead of D1 gives 11.0%. Leaving out the growth rate gives only the dividend yield of 5.3%.
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