QUESTION 1 (25)

1.1 Discuss the firm's dividend pay-out policy and whether it has an impact on share price. (6)

1.2 Explain why the different sources of capital have different levels of risk and return. (6)

1.3 Discuss whether the dividend growth model or the capital asset pricing model should

be used to calculate the cost of equity. (6)

1.4 Using the dividend growth model, an analyst has estimated that her company's cost of equity capital is 13% per annum. The current ex-dividend share price is 345.5 Rand, and the current dividend is 14 cents per share. Do calculations to show what rate of dividend growth the analyst is assuming. (7)