CS Executive · Corporate Accounting and Financial Management · Cost of Capital
Under the earnings-price approach with no growth, a firm's expected earnings per share is Rs 18 and the market price is Rs 150. The cost of retained earnings is:
The cost of retained earnings is 12%. Under the earnings-price approach with no growth, the cost equals expected earnings per share divided by market price, which is Rs 18 divided by Rs 150, giving 0.12 or 12%.
- A8.33%
- B12%Correct
- C18%
- D15%
Explanation
Ke = EPS/P0 = 18/150 = 0.12 = 12%. The 8.33% option inverts the ratio (150/18 is not used that way; 12.5/150 style errors). The other figures are not derived from the data.
Did you get it right without looking?
One question tells you little. A timed set on Cost of Capital shows your real accuracy, how long you take and where you lose marks.
More Cost of Capital questions
- Iyer Pharma issues 8% redeemable preference shares of ₹100 each at par, redeemable at par after 10 years, with no issue costs. Using the app…
- In financial management, the cost of capital used as the cut-off rate for accepting a new project is best described as:
- A company has 12% debentures of ₹1,00,000 outstanding, trading at par, with a tax rate of 25%. If the tax rate rises to 30%, what happens to…
- A firm's marginal cost of capital schedule rises at certain levels of total financing. Which is the usual reason for this rise, as taught in…
- Which weighting basis for WACC is generally regarded as theoretically superior because it reflects current investor expectations?
- Rao Textiles issues 10% irredeemable preference shares of face value ₹100 each at par, with no issue costs. What is the cost of preference s…