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According to the Dividend Price Approach, Cost of Equity (Ke) equals:
AD / P
BD + g
CEPS / P
DD₁ / P₀ + g
Answer & Solution
Correct answer: D. D₁ / P₀ + g
1. Dividend Price Approach (Constant Growth/DDM): Ke = D₁/P₀ + g.
2. D₁ = expected next dividend; P₀ = current market price; g = growth rate.
3. Most common form of the Dividend Discount Model.
_Source: ICAI BoS CA Inter Paper 6A, Ch 4 "Cost of Capital", §7_
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