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The market price per share of a company is Rs. 125. The dividend per share (DPS) is Rs 12 and DPS is expected to grow at a constant rate of 8% per annum. The cost of the equity capital to company will be
1. 17.6%
2. 15.4%
3. 13.2%
4. 11.8%

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Correct Answer - Option 1 : 17.6%

Concept:

\(Cost\;of\;equity = \frac{{DP}}{{MPS}} + r\)

Calculation:

Given:

Market price per share = Rs 125, Dividend per share = Rs 12, Rate = 8 % = 0.08

Now,

\(Cost\;of\;equity = \frac{{DP}}{{MPS}} + r\)

\(\therefore Cost\;of\;equity = \frac{{12}}{{125}} + 0.08\)

Cost of equity = 0.096 + 0.08 = 0.176

Thus, the cost of equity = 17.6%

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