Answer:
Cost of equity = 8.44%
Step-by-step explanation:
The price of a share can be calculated using the dividend valuation model
According to this model the value of share is equal to the sum of the present values of its future cash dividends discounted at the required rate of return.
The model can be modified to determine the cost of equity
Ke =Do (1+g)/P + g
g- growth rate in dividend, P- current price, D- recent dividend
growth rate = (( Recent dividend /oldest dividend)^1/n - 1)× 100
n- no of years of growth
growth rate = (1.73/1.40)^1/4 - 1 × 100 = 5.4%
Cost of equity = 1.73×(1.054)/60 + 0.054 = 8.44%