Hi This is from the CFAI text book. Can someone please explain how did the cost of equity drop from 10% to 9% when payout increases? thks
In the long case with this item set, in the last para it says: “Skylark’s competitors that pay a dividend appear to benefit from a 100 basis point reduction in cost of equity, regardless of capital structure. I assume Skylark’s cost of equity would decline by the same amount if it initiates a dividend.”
thanks, i need to read more carefully. May be i sure got some sleep.
I too, am worried about missing crucial stuff in a long case. I dont like their idea of testing us in reading comprehension skills rather than in testing our concepts skills.