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

Process of financing working capital, Q. Process of financing working capit...

Q. Process of financing working capital? Working capital policies on the process of financing working capital can be characterised as moderate, conservative and aggressive. A c

What do you mean by marketability, Q. What do you mean by Marketability? ...

Q. What do you mean by Marketability? Marketability: The firm must be able to sell its holdings and realize cash as and when required. The securities must be readily marketable

Explain the capital market process, Question 1 State the key functions of ...

Question 1 State the key functions of the financial market. Question 2 Define "Bill of exchange". What are its features? Give different types of cheques. Question 3

Weighted average cost of capital, Q. Weighted Average cost of Capital? ...

Q. Weighted Average cost of Capital? When the company capital structure is made from equity share capital , debenture and Preference share capital , then we calculated the comb

Leveraged buyouts, Leveraged Buyouts (LBOs) A leveraged buyout is a fin...

Leveraged Buyouts (LBOs) A leveraged buyout is a financing technique where debt is used to purchase the stock of a corporation and it frequently involves taking a public compan

Conversion ratio, It is the number that tells how many common stock...

It is the number that tells how many common stocks (or preference stocks) will the bondholder receive at the time of conversion. It is usually constant over

Opposite project - net present value, A company has the opportunity to sell...

A company has the opportunity to sell an old machine. The machine is fully depreciated to a zero book value but could be sold for $5,000. If the company did not sell the machine, i

Step-up (step down) notes, These types of securities have more ...

These types of securities have more than one coupon rate and each subsequent coupon rate is higher (or lower) than the previous coupon rate. For

Caselet, 1.How would you judge the potential profit of Bajaj Electronics on...

1.How would you judge the potential profit of Bajaj Electronics on the first year of sales to Booth Plastics and give your views to increase the profit? 2. Suggestion regarding C

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