Answer:
Cost of equity = 10.6%
Explanation:
<em>According to the dividend valuation, the value of a stock is the present value of expected future dividends discounted at the required rate of return.</em>
<em>The model can me modified to determined the cost of equity having flotation cost as follows:</em>
Cost of equity = D(1+r )/P(1-f) + g
d- dividend, p- price of stock , f - flotation cost , - g- growth rate in dividend
D-1.00, p - 20, f- 10%, g- 5%
Applying this to the question;
cost of equity - 1.00/(20×(1-0.1) )+ 0.05
= 10.6%
Cost of equity = 10.6%
The consumer will buy 56 Units
Procedure to solve
Δp = 20% of 15
Δp = 20/100 × 15
Δp = 3
e = 0.6
Formula:
e = (Δq/Δp)×p/q
0.6 = (Δq/-3)×15/50
0.6 × (-3) = Δq × 0.3
Δq = 1.8/0.3 = 6
Price decreases and quantity increases
Therefore
q' = q+Δq
q' = 50+6
q' = 56
p is the given price, q is the given quantity, Δp is the change in price, Δq is the change in quantity, e is the elasticity, q' is the new quantity.
Price Elasticity
The price elasticity of demand can be said to be an economic measure of the increase in the quantity of commodity demands or consumes in relationship to its change in price.
The price elasticity of demand refers to the percentage change in the quantity demanded of goods divided by the percentage change in the price.
Learn more about elasticity here:
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