Leading PE with dividend increase


Working on End of chapter questions for Chp 25, Corp Governance. The answer for #25 says that cost of equity would drop to 9% if half of earnings were paid as a dividend. I dont understand how you get to the 9%. Thanks in advance if anyone can expain

Caselet says tht cost of equity would decline by 100 bps of dividend initiated. Table gives cost of equity as 10% for 20% debt in cap structure. 100 bps decline gives 9%.

OMG, how did I miss that. I am getting punchy :slight_smile:

Thanks Sagacious