Shweta Ltd. has retained earnings of Rs. 72 lakh and equity capital of Rs. 38 lakh. If the equity investors expect a rate of return of $17 %$ and the cost of issuing fresh equity is $6 %$ , the cost of external equity is ___________.

16.4 %

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17.4 %

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17.7 %

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18.1 %

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19.1 %

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Solution

The correct option is D $18.1 %$
Cost of external equity
K'e = K $_{e}$ /1-f
Where K'e = Constant of external equity.
K $_{e}$ = Required rate of return
f = cost of issue
K'e = 0.17/1-0.06 = $18.10 %$ .

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Shweta Ltd. has retained earnings of Rs. 72 lakh and equity capital of Rs. 38 lakh. If the equity investors expect a rate of return of 17% and the cost of issuing fresh equity is 6%, the cost of external equity is ___________.

The correct option is D 18.1%Cost of external equityK'e = Ke/1-fWhere K'e = Constant of external equity. Ke = Required rate of returnf = cost of issueK'e = 0.17/1-0.06 = 18.10%.

Shweta Ltd. has retained earnings of Rs. 72 lakh and equity capital of Rs. 38 lakh. If the equity investors expect a rate of return of $17 %$ and the cost of issuing fresh equity is $6 %$ , the cost of external equity is ___________.

The correct option is D $18.1 %$
Cost of external equity
K'e = K $_{e}$ /1-f
Where K'e = Constant of external equity.
K $_{e}$ = Required rate of return
f = cost of issue
K'e = 0.17/1-0.06 = $18.10 %$ .