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8. Q Ltd. is planning to pay dividend of ` 2 per share in next year. Growth rate of company is 8% p.a. Current market price per share is ` 51. Flotation cost is ` 1 per share. FINANCIAL MANAGEMENT AND STRATEGIC MANAGEMENT What will be cost of equity?

Options

A12.23%
B11.92%
C12.00%
D12.32% (1 Mark) Case Scenario - II A team of professionals having expertise in the areas of Artificial Intelligence (Al), Block Chain (BC), Cloud Computing (CC) and Data Mining (DM) formed a company in the name and style of M/s. ABCD Ltd. (the company). The aim of the company is to position itself as the best service provider in its area of operations with best user experience to its customer. Concentrating on its resources and capabilities, the company wants to target 8% year-on-year growth in revenue and 9% year-on-year growth in net profit in its business plan. In order to identify right approach to select and implement the strategy, the company has decided to conduct in depth strategic analysis on strategic groups, objectives, performance and cost structure of companies having similar operations in the market. In the month of March 2025, the Board of Directors of the company thought it proper to be in the business of manufacturing Robots and providing services relating thereto. The company knows that there is no linkage between existing and proposed business with specific reference to product or market or technology. As per proposed arrangement, majority of the components of Robots will be imported from M/s. Faisla Inc. (FI), an established player in this area. The Robots will be assembled in India specifically for use at homes and in restaurants. The company will endeavor to provide the above product while using cutting- edge technology with customized features and best of the services. The core intent will be to elevate the same to unprecedented level. In this context, the company would like to offer additional facilities like: better customer interface, online repair service and services on site to its customer. In addition, company is of a considered view that meticulous analysis of its stakeholders will facilitate to build and maintain strong relationship with each group. As an accepted practice, greatest efforts are in place to satisfy Mr. X, the Chief Executive Officer of the company by taking his advice and keeping him informed with all related information and developments on a regular basis. Based on above case scenario, choose the correct option for MCQ number 9 to 13:
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Correct Answer

✅ Option C — 12.00%

All Options:

  • A12.23%
  • B11.92%
  • C12.00% ✓
  • D12.32% (1 Mark) Case Scenario - II A team of professionals having expertise in the areas of Artificial Intelligence (Al), Block Chain (BC), Cloud Computing (CC) and Data Mining (DM) formed a company in the name and style of M/s. ABCD Ltd. (the company). The aim of the company is to position itself as the best service provider in its area of operations with best user experience to its customer. Concentrating on its resources and capabilities, the company wants to target 8% year-on-year growth in revenue and 9% year-on-year growth in net profit in its business plan. In order to identify right approach to select and implement the strategy, the company has decided to conduct in depth strategic analysis on strategic groups, objectives, performance and cost structure of companies having similar operations in the market. In the month of March 2025, the Board of Directors of the company thought it proper to be in the business of manufacturing Robots and providing services relating thereto. The company knows that there is no linkage between existing and proposed business with specific reference to product or market or technology. As per proposed arrangement, majority of the components of Robots will be imported from M/s. Faisla Inc. (FI), an established player in this area. The Robots will be assembled in India specifically for use at homes and in restaurants. The company will endeavor to provide the above product while using cutting- edge technology with customized features and best of the services. The core intent will be to elevate the same to unprecedented level. In this context, the company would like to offer additional facilities like: better customer interface, online repair service and services on site to its customer. In addition, company is of a considered view that meticulous analysis of its stakeholders will facilitate to build and maintain strong relationship with each group. As an accepted practice, greatest efforts are in place to satisfy Mr. X, the Chief Executive Officer of the company by taking his advice and keeping him informed with all related information and developments on a regular basis. Based on above case scenario, choose the correct option for MCQ number 9 to 13:

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Detailed Solution & Explanation

Correct Answer: Option **C**

**Explanation:**
According to the Dividend Growth Model (also known as the Gordon Growth Model), the cost of equity (Ke\displaystyle K_e) is calculated using the formula:
Ke=fracD1P0−F+gK_e = \\frac{D_1}{P_0 - F} + g
Where:
- D1\displaystyle D_1 = Expected dividend per share next year = ₹ 2
- P0\displaystyle P_0 = Current market price per share = ₹ 51
- F\displaystyle F = Flotation cost per share = ₹ 1
- g\displaystyle g = Growth rate of dividend = 8% p.a. = 0.08
- P0−F\displaystyle P_0 - F = Net proceeds per share from issuing equity = 51−1=text₹50\displaystyle 51 - 1 = \\text{₹ } 50

Substituting the given values into the formula:
Ke=frac250+0.08K_e = \\frac{2}{50} + 0.08
Ke=0.04+0.08=0.12textor12.00K_e = 0.04 + 0.08 = 0.12 \\text{ or } 12.00\\%

Hence, **Option C** is the correct answer.

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