Dividend yield method, Financial Management

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

Posted Date: 10/16/2012 12:54:45 AM | Location : United States







Related Discussions:- Dividend yield method, Assignment Help, Ask Question on Dividend yield method, Get Answer, Expert's Help, Dividend yield method Discussions

Write discussion on Dividend yield method
Your posts are moderated
Related Questions
Application of Shareholder Value Maximization Framework   Factors affecting Shareholder's Value are: Capital Market Conditions Profitability à Includes factors li

The Rise of Derivative Market: In the 1980s, the process of liberalization and deregulation of the financial markets gained momentum when the British and American leadership l

What is the common pattern of cash flows for a share of preferred stock? How does the market define the value of a share of preferred stock, specified these promised cash flows?

You are considering starting a walk-in-clinic. Your financial projections for the first year of operation are as follows: Revenues (10,000 visits) $400,000 Wages and benefits $220,

Typically, there exist two types of bids in the treasury auction process. They are: Competitive bid and non-competitive bid. A non-competitiv

Describe the benefits of Wealth maximisation criterion Value of an asset must be viewed in terms of the benefits it can produce. Worth of a course of action can similarly be ju

Question: You have been appointed as the head of the treasury of Platza International, an automobile firm with many subsidiaries abroad. The management of Platza International

Explain how using a risk-adjusted discount rate enhances capital budgeting decision making compared to by using a single discount rate for all projects? The risk-adjusted disco

Q. What is Risk mitigation and how it is monitored? 1. When managing risks, there are several risk strategy options to be considered. Risk may be avoided entirely, transferred

Market participants' measure the default risk of an issue on the basis of the credit ratings that the credit rating agencies assign to the issues. Once rating is