Dividend yield method, Financial Management

Assignment Help:

Dividend yield method

As per this method, the cost of Equity capital is the discount rate that equates the present value of expected future dividends per share with the net proceeds (or current market price) of a share.

K = D /NP (or) D / MP

Where, Ke = cost of Equity capital, D = Expected dividend per share, MP = Market price per share and NP = Net proceeds per share

Illustration:

 A company issues 1000 equity shares of Rs.100 each at a premium of 10%.  The company has been paying 20% dividend to its equity shareholders for the past 5 years and expects to maintain the same in the future also. Compute the cost of equity capital. Will it make any difference if the market price of equity share is Rs.160?

1955_dividend yield method.png


Related Discussions:- Dividend yield method

ANY, need to understand some basics of changes in working capital

need to understand some basics of changes in working capital

Cash discount, Which one is true 1.the higher the discount rate the lower ...

Which one is true 1.the higher the discount rate the lower the cost of trade credit 2.the higher the discount rate the higher the cost of trade credit 3.cost of trade credit duri

Define condition for fixed-for-floating interest rate swap, What is the ess...

What is the essential condition for a fixed-for-floating interest rate swap to be possible? For a fixed-for-floating interest rate swap to be feasible it is essential for a quali

Mortgages, A mortgage may be defined as a pledge of property ...

A mortgage may be defined as a pledge of property to secure a debt payment; in this context, we will use the term property to mean real estate. If the

Cash vs. accrual accounting, Cash vs. Accrual Accounting: While it is b...

Cash vs. Accrual Accounting: While it is beyond the scope of this module to assess accounting systems against all types of accounting styles, it is important that managers unde

Operating cycle, discuss an operating cycle of vegetable growing in Uganda

discuss an operating cycle of vegetable growing in Uganda

Letter of credit (loc), Letter of Credit (LOC) A popular bank instrumen...

Letter of Credit (LOC) A popular bank instrument begins that a bank has granted the holder an amount of credit equal to the face amount of the L/C. A bank guarantees payment of

Why does money have time value, Why does money have time value? Positiv...

Why does money have time value? Positive interest rates point toward that money has time value.  When one person lets one more borrow money, the first person needs compensation

Suggestion regarding Credit limit. Should it be approved or, Suggestion reg...

Suggestion regarding Credit limit. Should it be approved or not, what should be the amount of credit limit that electronics give to Booth Plastics.

Case let 2, how would you judge the potential profit of Bajaj Electronics o...

how would you judge the potential profit of Bajaj Electronics on the first year of sales to booth plastice and give your views to to increase the profit

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd