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

13 basic ratios, What its the net income? Total current assets, plant and e...

What its the net income? Total current assets, plant and equipment, net plant and equipment, our net account receivable?

Explain risk adjusted discount rate method, Q. Explain Risk Adjusted Discou...

Q. Explain Risk Adjusted Discount Rate Method? In the risk adjusted discount rate method the future cash flow from capital projects are discount at the hazard adjusted discount

Define the types of shareholder, Tactics can be used by company to protect...

Tactics can be used by company to protect itself. Before the bid Types of Shareholder Having the right shareholders on board who can be

State the objectives of corporate financial, State the objectives of Corpor...

State the objectives of Corporate financial Corporate financial objectives could be to: 1. Provide the link between business and the other entities in environmentand 2.

Finance, Do you provide help in college level Managerial Finance?

Do you provide help in college level Managerial Finance?

Financial accounting, Financial accounting: Financial accounting attemp...

Financial accounting: Financial accounting attempts to establish the value of a particular organisation at a specific point in time, and its earnings over a specified period of

Swiss variable rate mortgage, A Swiss Variable Rate Mortgage (S...

A Swiss Variable Rate Mortgage (SVRM) is a version of ARM which carries a coupon rate that a bank can change any time giving a notice of three m

Advantage of mutual funds, Advantage of mutual funds Mutual Funds are a...

Advantage of mutual funds Mutual Funds are advantageous to individual investors in relation to their direct involvement in investment portfolio activity covering the following

Exchange rate or currency risk, A bond whose payments are made in for...

A bond whose payments are made in foreign currency has unknown cash flows in domestic currency. This is because the cash flows are dependent on the exchange rate

Price hike, should a company pursue price hike or focus on increased sales

should a company pursue price hike or focus on increased sales

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