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Question 8.4: Avalon plc has ordinary shares in issue that have a current ...

Avalon plc has ordinary shares in issue that have a current market price of £1.50. The dividend expected for next year is 20p per share and future dividends are expected to grow at a constant rate of 3 per cent a year.
What is the cost of the ordinary shares to the business?

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The cost is:
K_{0 }=\frac{ D_{1}}{P_{0}}+ g = \frac{0.20}{1.50}+ 0.03 = 0.163  or  16.3%

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