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

Describe the sales forecasting process, Describe the sales forecasting proc...

Describe the sales forecasting process. Sales assumptions are a group effort. Marketing and Sales personnel usually provide assessments of demand and the competition.  Producti

Estimate the total rate of return, Question: Explain: (a) the advant...

Question: Explain: (a) the advantages and disadvantages, to a company, of debt finance over equity finance; (b) the reasons why a company may choose to issue preference s

Assignment, Discuss the applicability ofan operating cycle in a poultry bus...

Discuss the applicability ofan operating cycle in a poultry business(consider broilers)

Financial Managemente.., Madhuban group manufactures a product. The followi...

Madhuban group manufactures a product. The following particulars are as follows: 5 Monthly demand 1000 units Cost of placing an order Rs. 100 Annual carrying cost per unit Rs. 15 N

Explain the term - financial analysis, Financial analysis The purpose o...

Financial analysis The purpose of financial statements is to provide information to all the users of these accounts to assist them in their decision-making. It has to be concer

Explain the sovereign risk, Explain the Sovereign Risk Sovereign risk d...

Explain the Sovereign Risk Sovereign risk denotes a country imposing exchange restrictions on a currency included in a swap making it expensive, or not possible, for a counterp

Provisions for paying off bonds, The issuer of the bond has to repay ...

The issuer of the bond has to repay the bondholders the principal by the stated maturity date. This can be repaid by the issuer in one lumpsum payment at the matu

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