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

Define some instances of restrictive covenants, What are some instances of ...

What are some instances of restrictive covenants that might be fixed in a bond's indenture? An indenture might involve limitations on future borrowings, restrictions on dividen

Show the analysis of credit information, Q. Show the Analysis of Credit Inf...

Q. Show the Analysis of Credit Information? Analysis of Credit Information: - Subsequent to obtaining the desired information from various sources the information is examined t

Explain about the investment decision- financial management, Explain about ...

Explain about the investment decision- financial management The investment decision relates to selection of assets in which funds would be invested by a firm. Assets which can

Compounding technique for calculating time value of money, COMPOUNDING TECH...

COMPOUNDING TECHNIQUE is the method of calculating the future values of cash flows and involves calculating compound interest.  Under this process, interest is compounded when the

Demerits of profitability index method, Q. Demerits of profitability index ...

Q. Demerits of profitability index method? Demerits of PI method:- (i) This method is complicated to understand and implement (ii) Calculations in this method are complex

Calculate the capital charge for the bank, A bank comprises a $500 million ...

A bank comprises a $500 million portfolio of investments and bank credits. The everyday standard deviation of return on this portfolio is .666 %. Capital adequacy standards need th

Walter model, What is Walter Model? Please provide me report on Estimation ...

What is Walter Model? Please provide me report on Estimation of Walter Model. It is about 2000 words count report on topic Walter Model.

Restrictions on investments, Restrictions on Investments: A mutual fund...

Restrictions on Investments: A mutual fund scheme shall not invest more than 15% of its NAV in debt instruments issued by a single issuer, which are rated not below investment

Calculate the net present value, NPV and Other Criteria Waddington Inter...

NPV and Other Criteria Waddington International Inc. has $20 million to invest. It is considering whether to build a new factory in Western Canada. The land and the building wil

Determining the call option value, The effective maturity of a ...

The effective maturity of a callable bond can be anywhere between the first call date and its maturity date due to the presence of the call feat

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