Dividend yield plus growth in dividend method, Financial Management

Dividend yield plus growth in dividend method

When the dividends of the firm are predictable to grow at a constant rate and the dividend payout ratio is constant, this technique may be used for calculating the cost of equity shares.

387_dividend yield method.png

Where, Ke = cost of Equity capital, D = Expected dividend per share, g = rate of growth in dividends, MP = Market price of equity shares and NP = Net proceeds per share

Illustration:

A Co. plans to issue 1000 new shares of Rs.100 each at par.  The floatation costs are expected to be 5% of the share price. The co. pays a dividend of Rs.10 per share initially and the growth in dividends is expected to be 5%. (a) Compute the cost of new issue of equity shares. (b) If the current market price of an equity share is Rs.150, calculate the cost of existing equity share capital

Solution: (a)  K = D + g =        10  + 5% = 15.53%

1276_dividend yield method1.png

Posted Date: 10/16/2012 12:57:30 AM | Location : United States







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

Write discussion on Dividend yield plus growth in dividend method
Your posts are moderated
Related Questions
FEATURES OF A BUDGET a.         It is prepared for a specific period. b.         It is expressed in quantity or money or both. c.         It is a statement describing ob

Question: (a) The key determinants of investment decisions in the public sector are:- legal, political and financial factors. Show the importance of each determinant when de

The Pennington Corporation issued a new series of bonds on January 1, 1979. The bonds were sold at par ($1,000), have a 12 percent coupon, and mature in 30 years, on December 31,

Consolidations of Merger - amalgamation A consolidation is a combination of two or more companies into a new company. In this form of merger all the existing companies which co

State the Examples of tests of controls: Check bank reconciliation has been reconciled as approved by chief accountant. Observe buyer checking the goods received note a

Rating denote an issuer's ability to respond to adverse changes in circumstances and economic conditions. The rating scale is generally differentiated into variou

Lincoln Park Zoo in Chicago is considering a renovation that will improve some physical facilities at a cost of $1,800,000. Addition of new species will cost another $310,000. Addi

What is the  Discount and Premium? Describe please.

Question 1: i) Discuss the benefits of international diversification and the issue of home country's bias in equity and bonds markets? ii) Explain carefully the currency he

Fixed income security is a financial obligation of an entity, which promises to pay a pre-specified amount of money at per-specified date. Debt securities (