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CIMAPRA19-F02-1 Exam - Topic 5 Question 119 Discussion

EF have just paid a dividend of 20 cents a share and the current share price is $3.75. EF regularly reinvests 40% of its profit for the year and generates a return on reinvested funds of 12%.The cost of equity for EF using the dividend valuation model is:
A) 10.4%
B) 12.9%
C) 10.7%
D) 13.2%

CIMAPRA19-F02-1 Exam - Topic 5 Question 119 Discussion

Actual exam question for CIMA's CIMAPRA19-F02-1 exam
Question #: 119
Topic #: 5
[All CIMAPRA19-F02-1 Questions]

EF have just paid a dividend of 20 cents a share and the current share price is $3.75. EF regularly reinvests 40% of its profit for the year and generates a return on reinvested funds of 12%.

The cost of equity for EF using the dividend valuation model is:

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Suggested Answer: A

by Augustine at Nov 19, 2025, 03:25 AM

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Annelle
5 months ago
I’d go with A. The dividend yield is key here.
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Fatima
5 months ago
I like D, 13.2%. High returns on reinvested funds matter.
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Mee
5 months ago
I’m not sure, but C, 10.7% sounds plausible too.
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Amber
6 months ago
I’m feeling B, 12.9%. The reinvestment return is solid.
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Jennie
6 months ago
I lean towards option A, 10.4%. It seems reasonable.
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Ahmed
6 months ago
Wait, how can they reinvest 40% and still have a high return?
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Elly
6 months ago
10.4% seems way too low for this scenario.
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Jennifer
6 months ago
I think the cost of equity is closer to 12.9%.
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Lezlie
6 months ago
Current share price is $3.75.
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Geraldine
7 months ago
The dividend just paid is 20 cents.
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Goldie
7 months ago
Ah, the classic dividend valuation model. I bet the answer is hidden in the numbers like a needle in a haystack.
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Rupert
7 months ago
I dunno, man. Sounds like a lot of financial mumbo-jumbo to me. Just give me the tendies and I'm good.
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Shawn
8 months ago
I'm going with B) 12.9%. Seems like the most reasonable answer based on the information provided.
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Kina
8 months ago
C) 10.7% seems more plausible. The dividend yield and reinvestment rate don't seem to support the higher answers.
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Mary
8 months ago
D) 13.2% looks right to me. The high return on reinvested funds suggests a higher cost of equity.
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Janine
8 months ago
I feel like the answer might be around 10.7% based on my calculations, but I’m not completely confident in my growth rate estimation.
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Luann
8 months ago
If EF reinvests 40% of its profits, does that mean the growth rate is 0.4 * 0.12? I hope I got that right!
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Cassandra
8 months ago
I remember practicing a similar question where we had to find the cost of equity using dividends. I think the growth rate is based on the reinvestment percentage and return on reinvested funds.
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Vincenza
9 months ago
I'm feeling confident about this one. The information they've given us should be enough to solve it.
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Ressie
9 months ago
This seems straightforward enough. I'll work through it step-by-step and double-check my work.
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Luisa
9 months ago
Wait, what's the dividend valuation model again? I'm a bit fuzzy on that concept.
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Latosha
9 months ago
I think it's tricky. The dividend model can be confusing.
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Odette
9 months ago
I think the answer is B) 12.9%. The dividend yield and growth rate seem to be the key factors here.
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Bernardo
9 months ago
I think we need to use the Gordon Growth Model here, but I'm a bit unsure about how to calculate the growth rate accurately.
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Fausto
10 months ago
Okay, I think I can do this. The dividend yield and growth rate are provided, so I just need to plug those into the formula.
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Alesia
10 months ago
Hmm, this looks like a dividend valuation model question. I'll need to remember the formula and plug in the given values.
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Arlene
5 months ago
That gives us a growth rate of 4.8%.
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Antonio
5 months ago
So, 40% of profits are reinvested, and the return is 12%.
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Emerson
5 months ago
Right! We can use the reinvestment rate for that.
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Levi
10 months ago
Then we can apply the formula to find the cost of equity!
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Jame
10 months ago
I think we need to calculate the growth rate first.
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