principal project is valuable to the disbursement of properties. As for stakeholders,
this concept helps to recognize if the asset is worth the risk compared to return. Cost
of Capital signifies a barrier rate where firms must solve before it initiates value. It is
also used to deduce how well the project is before undertaking it.
3.1 Cost of Equity
The return a firm need to resolve if an asset meets the capital return’s requirements is
known as cost of equity. Furthermore, it reimburses the market request by trading the
remaining asset and tolerating the ownership risk. Shareholders will accommodate the
principal to firms and in return, shareholders will obtain payment from the firm
through principal gain. Two approaches to analyze cost of equity for Maybank Group
will be provided in this report. The approaches are Capital Asset Pricing Model
(CAPM) and Dividend Growth Model (DGM).

3.1.1 Method 1 - Capital Asset Pricing Model (CAPM)
CAPM is a framework used by firms to undertake the interrelation allying expected
return and systematic risk. In addition, exercising the risk of certain resources, CAPM
helps to create the expected return for those resources. CAPM presumes the expected
return is same to the required return. Besides that, the expected return must meet the
required return.
r
e
=
R
f
+
β
(
R
m
−
R
f
)
The guideline above signifies the formula for cost of equity (
r
e
).
R
f
is the risk-
free rate,
β
is identified as beta or as the systematic risk which is undiversifiable
and
(
R
m
−
R
f
)
is the risk premium of a market.
To identify the value of cost of equity, first we need to find
R
f
. According to The
Wall Street Journal,
R
f
is 3.470% which can be witnessed in Appendix 2. Next,
β
. Beta
was found in Appendix 3. Lastly, the value of
R
m
was taken from the
Market Return above.
r
e
=
R
f
+
β
(
R
m
−
R
f
)
r
e
=
3.470%
+
0.87
(
4.7%
−
3.470%
)
r
e
=
4.54%
Variable
As at
Period of
R
f
3.470%
31
st
December 2018
R
m
4.7%
2017 -2018
βeta
0.87
26
th
September 2019
Table 2
3.1.2 Method 2 - Dividend Growth Model (DGM)
The second method to calculate the cost of equity is by using DGM. DGM Model is
applied to seek the intrinsic amount of a stock according to the future
successions of divided that grows at a continuous rate. The formula for DGM can
be seen below.
r
e
=
D
1
P
0
+
g
The guideline above signifies the cost of equity which indicates the dividend of the
following years (
D
1
) divided by current price of stock (
P
0
) and add the
continuous growth rate (
g
).
Constant Growth can be derived by the following formula below
g
=
Plowback Ratio x Return on Equity
(
ROE
)

g
=(
1
−
Dividend
Earnings Per Share
(
EPS
)
)
X
Net Income
Shareholder
'
s Equity
The constant growth can be solved by inserting the values from the Annual Report
which can be seen in Appendix 4, Appendix 5, Appendix 6, Appendix 7 and placing it
into the formula above.
Variable
As at
Period of
Dividend
RM0.25 (Interim) + RM0.32
(Final)
31
st
December 2018
EPS
7.42 Sen (Basic)
31
st
December 2018
Net Income
RM8,113,260
31
st
December 2018
Shareholder’s
Equity
RM35,869,486 (Total Asset) –
RM29,703,053 (Total Liabilities)
31
st
December 2018
P
0
9.50
31
st
December 2018
Table 3
g
=(
1
−
RM
0.25
+
RM
0.32
0.742
)
X
RM
8,113,260
RM
806,991,681
−
RM
729,254,421
¿
g
=
0.0242
g
=
2.42%
Thus, by having the
g
,
we can calculate the
r
e
.