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Nielson Motors has a share price of​ $25 today. If Nielson Motors is expected to pay a dividend of​ $0.75 this​ year, and its stock price is expected to grow to​ $26.75 at the end of the​ year, then​ Nielsen's dividend yield and equity cost of capital​ are:

Answer :

Answer:

Dividend Yield = 3%

Equity cost of capital = 10%

Explanation:

Dividend yield is a financial ratio which is used by investors to assess a company's annual dividend payout in comparison of its stock price. The formula for dividend yield ratio is :

Annual dividend / Stock price

$0.75 / $25 = 3%

Equity cost of capital is the rate of return required by the investors of equity. This is the rate which a company must pay to raise funds. The formula for finding equity cost of capital is :

Dividend Yield + (Expected Stock price - Stock price today) / Stock price today

3% + ($26.75 - $25 ) / $25 = 10%

Kolawole845

Answer:

Cost of equity = 9.6%

Dividend Yield = 3.0%

Explanation:

Growth rate in dividend

growth rate in dividend =( Price in year 1/Price now) - 1

=(26.75/25)-1

=6.6%

Cost of equity

(Ke) =( D(1+g)/P) + g

ke- cost of equity, Div in year 0, P= ex-div market price, g= growth rate in div.

0.75/25 + 0.066

=9.6%

Dividend Yield

DY = Dividend/current price share

=( 0.75/25)× 100

= 3.0%

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