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

Preparing financial statements using accrual basis, Question: On a pilo...

Question: On a pilot basis a Government Department, PPO, is preparing its financial statements using accrual basis. The following information is provided: The following bala

Determine the advantages of explicit cost, Determine the advantages of expl...

Determine the advantages of explicit cost Explicit cost of an interest bearing debt will be the discount rate which equates present value of the contractual future payments of

Random number generation, Random Number Generation Since we have said t...

Random Number Generation Since we have said that competitors' average price, quantity sold and cost behave in a random fashion but follow a normal distribution, if we want to d

Explain the factors that are responsible for recent surge, What factors are...

What factors are responsible for the recent surge in international portfolio investment (IPI)? Answer:  The recent surge in international portfolio investments denotes the global

Explain the term- quality of decisions, Explain the term- quality of decisi...

Explain the term- quality of decisions Performance and business risk This is focussed on " quality of decisions ". The comparison of an organisations performance with t

Why the term objective is used for, Why the term objective is used for ...

Why the term objective is used for The term is used in a rather narrow sense of what a firm must attempt to achieve with its financing, investment and dividend policy decisions

What is financing decision, What is Financing Decision Provision of ...

What is Financing Decision Provision of funds required at proper time is one of theprimary tasks of finance manager. Identification of the sources, deciding whichtypes of fu

What are the negative consequences of a company holding, What are the negat...

What are the negative consequences of a company holding too much cash? A company holding in excess of cash would be giving up the opportunity to invest more in income producing

China emerged as second most significant recipient of fdi, How would you de...

How would you describe the fact that China emerged as the second most significant recipient of FDI after the United States in recent years? Answer: China attracted a large deal o

Interest rate risk, Bonds are usually recognized by yields, which cha...

Bonds are usually recognized by yields, which change from time to time owing to many market forces. There exists an inverse relationship between the bond price and the

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