Question

Company Z most recent dividend is €2. Company Z maintatin a constant 5% growth rate in...

Company Z most recent dividend is €2. Company Z maintatin a constant 5% growth rate in dividends. Company Z stock sells for €32.

a) Calculate the Company Z cost of equity.

b) Calculate Company Z dividend yield.

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Answer #1
a) Cost of Equity 11.56%
Working:
Cost of equity = (D0*(1+g)/P0)+g Where,
= (2*(1+0.05)/32)+0.05 D0 €             2
= 11.56% g           0.05
Po €          32
b) Dividend yield 6.56%
Working:
Dividend yield = Yearly dividend /Current Price of share
= €       2.10 / €          32
= 6.56%
Yearly Dividend = D0*(1+g)
= 2*(1+0.05)
= €       2.10
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