Answer:
Cost of equity = 7.47%
Explanation:
The Discounted Cash flow (DCF) Model; This is a technique used to value the worth of an asset. According to this model, the value of an asset is the sum of the present values of the future cash flows that would arise from the asset discounted at the required rate of return.
Using this model, the required rate of return is the cost of equity. It is given below as follows:
Cost of equity (Ke) =( D(1+g)/P) + g
Div in year 0, P= ex-div market price, g= growth rate in div.
D- 0.75 , g- 2.9%, P-16.90
For this question,
Ke= ( 0.75×(1+0.029)/16.90 ) + 0.029
=0.0746 × 100
= 7.47%
Cost of equity = 7.47%
