Finance

PROBLEM NO 12: XYZ Ltd. is currently earning a profit after tax of Rs.25,00,000 and its shares are quoted in the market at Rs.450 per share. The company has 1,00,000 shares outstanding and has no debt in its capital structure. It is expected that the same level of earnings will be maintained for future years also. The company has 100 per cent pay-out policy. Required: a) Calculated the Cost of equity b) If the company's pay-out ratio is assumed to be 70% and it earns 20% rate of return on its investment, then what would be the firm's cost of equity