Dividend yield plus growth in dividend method, Financial Management

Assignment Help:

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


Related Discussions:- Dividend yield plus growth in dividend method

Working of financial services authority, Working of FSA The FSA Board ...

Working of FSA The FSA Board is responsible for the management of FSA. It is appointed by the Treasury. It consists of a chairman, a chief executive officer, three managing dir

Securitization, Securitization refers to conversion of illiquid asset...

Securitization refers to conversion of illiquid assets to liquid assets by converting longer duration cash flows into shorter duration ones. Securitization denote

Determine the key points in the turnbull report, Key points in the Turnbull...

Key points in the Turnbull Report: Have a defined process for review of effectiveness of internal control. Review regular reports on internal control. Consider key

Bank loans for a company seeking short-term financing, What are the pros an...

What are the pros and cons of commercial paper relative to bank loans for a company seeking short-term financing? Commercial paper is generally a cheaper source of short-term f

Pay in interest over first year of its eurodollar loan, A company borrows $...

A company borrows $1,500,000 at LIBOR plus a lending margin of 1.25 percent per year on a six-month rollover basis from a London bank.  If six-month LIBOR is 4 ½ % over the first s

Explain and compare forward vs. backward internalization, Explain and compa...

Explain and compare forward vs. backward internalization. Forward internalization takes place when MNCs with intangible assets make FDI in order to use the assets on a larger sca

Explain accept-reject criteria, Q. Explain Accept-Reject Criteria? Acce...

Q. Explain Accept-Reject Criteria? Accept-Reject Criteria:- If actual ARR is elevated than the predetermined rate of return .......................Project would be accep

Frankfurt stock exchange, Frankfurt Stock Exchange The roots of the Fran...

Frankfurt Stock Exchange The roots of the Frankfurt Stock Exchange may be traced back to the period of medieval fairs. As early as the middle of the ninth century, Emperor Ludwi

Evaluate cost of irredeemable debt subsequent to tax, Q. Evaluate Cost of I...

Q. Evaluate Cost of Irredeemable Debt subsequent to tax? Cost of Irredeemable Debt subsequent to tax: - When a company utilizes debt as a source of finance then it saves a cons

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