An analyst gathers the following information: The beta coefficient for OTX Ltd is 1

Finance Jun 06, 2021

An analyst gathers the following information:

The beta coefficient for OTX Ltd is 1.77. The company has just paid a $1.37 dividend per ordinary share. The dividend is expected to grow at 4% forever. The ordinary share of the company is currently traded in the market at $8.24 per share. The risk-free rate is 4.46%. Use only relevant information and applicable method to find the cost of OTX ordinary share.

(Round the final answer to two decimal places. If your answer is 12.34%, write only 12.34; do NOT write 0.1234)

Expert Solution

Computation of Cost of OTX ordinary share:

Cost of OTX Ordinary Share = Dividend for Next Year/Current Market Price + Growth Rate

= $1.37*(1+4%) / $8.24 + 4%

= $1.4248/$8.24 + 4%

= 17.29% + 4%

Cost of OTX Ordinary Share = 21.29% or 21.29%

So, Cost of OTX Ordinary Shares is 21.29%.

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