Cost of equity (Ke): dividend growth model - part 2

In this lesson

1. 0:00 Cost of equity formula in action
2. 1:38 Calculating dividend growth rate historically
3. 3:41 Forecasting cost of equity with growth
4. 5:03 Growth rate using earnings retention method
5. 6:46 Summary and exam preparation tips

About this lesson

This video walks you through four worked examples that build your confidence with the formulas: calculating cost of equity from dividend data, using the historic growth method to find growth rates, and applying the earnings retention method. By the end, you'll understand when to adjust for ex-dividend share prices, how to handle multi-year dividend data, and why these calculations are reliable sources of exam marks. The first example introduces the dividend growth formula with Mickey, a company paying fixed dividends, showing you why ex-dividend share prices matter. The second and third examples use Jess to demonstrate the historic growth method—calculating the growth rate from past dividends, then using it to forecast next year's dividend and find the cost of equity. The final example with Benko covers the earnings retention method, where you calculate growth by multiplying the return on retained earnings by the retention ratio. Each calculation builds logically on the last, and the video emphasises that while these can feel fiddly, they're highly repetitive and become second nature with practice. Mastering these techniques unlocks consistent marks in your exams.

Duration: 8m