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

Mortgage-backed bonds, Unlike the mortgage pass-through securities, t...

Unlike the mortgage pass-through securities, the mortgage-backed bonds are debt obligations of the mortgage originator. Every issue of such bonds should be backed

Determine the analytical procedures of auditors, Analytical procedures of a...

Analytical procedures of auditors Auditors must apply analytical procedures at the planning and overall review stage of audit. Analytical procedures include the considerati

Calculations and graphing cumulative returns, Monthly Returns: You now nee...

Monthly Returns: You now need to calculate the monthly "periodic" returns for all three stocks and the S&P index.  Adapting the holding period return formula (End - Beg) / Beg for

Explain and compare the costs of hedging, Explain and compare the costs of ...

Explain and compare the costs of hedging via the forward contract and the options contract. Answer: There is no up-front cost of hedging through forward contracts. Though, in t

Effective duration and convexity of callable bonds, The modified dura...

The modified duration is a measure of the sensitivity of a bond's price to interest rate changes; the assumption made here is that the expected cash flow does not

APR and EAR, Assume a bank charges a 15.5% APR (annual percentage rate) on ...

Assume a bank charges a 15.5% APR (annual percentage rate) on credit card holder compounds quarterly. What EAR (effective annual rate) is the bank is charging? What if they change

What is capital rationing, What is capital rationing? Should a firm practic...

What is capital rationing? Should a firm practice capital rationing? Why? Capital rationing is the practice of putting dollar limits on what will be invested in new capital bud

Put provision, An issue with a put provision included in the ag...

An issue with a put provision included in the agreement grants the bondholder the right to sell bonds back to the issuer at a pre-specified rate

Determine finance growth and evolution, a) Debentures are a source of exter...

a) Debentures are a source of external long term (loan) finance for which interest is paid to the debenture holder. Debenture holders do not usually have voting or ownership rights

Compare and contrast j''s current style of management, When J was promoted ...

When J was promoted to be the new Sales and Marketing Manager for Company L, after working there in different capacities over the last ten years, it was a popular choice between he

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