If price-to-book ratio at the end of 2005 equals 1.00, and return on beginning of year equity is expected to remain constant, then cost of equity (to nearest percent) equals: a) 24% b) 15% c) 21% d) Not determinable

If price-to-book ratio at the end of 2005 equals 1.00, and return on beginning of year equity is expected to remain constant, then cost of equity (to nearest percent) equals: a) 24% b) 15% c) 21% d) Not determinable

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Use attachment to answer the following

If price-to-book ratio at the end of 2005 equals 1.00, and return on beginning of year equity is expected to remain constant, then cost of equity (to nearest percent) equals:

a) 24%

b) 15%

c) 21%

d) Not determinable

American Corporation reports the following:
Earnings per share
Dividends per share
Book value per share- at the end of the
year
2005
$1.80
$0.72
$8.62

Definition Definition Amount of return a company generally pays to its equity investors. The cost of equity represents the compensation required by the market in lieu of owning the asset firm and simultaneously bearing the risk of ownership.

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