From the undermentioned facts determine the cost of equity

Question

Question: From the undermentioned facts determine the cost of equity shares of company X

(i) Current market price of a share $150.00

(ii) Cost of flotation per share on new shares $3.00

(iii) Dividend paid on the outstanding shares over the past six years

YEAR                 DIVIDEND PER SHARE

1                                10.50

2                                11.02

3                                11.58

4                                12.16

5                                12.76

6                                13.40

(iv) Assume a fixed didvidend pay out ratio.

(v) Expected dividend on the new shares at the end of the current year is $14.10 per share.