Question

Krell Industries has a share price of $ 22.00 today. If Krell is expected to pay a dividend of $ 0.88 this year and its stock price is expected to grow to $ 23.54 at the end of the​ year, what is​ Krell's dividend yield and equity cost of​ capital? The dividend yield is nothing​%. ​(Round to one decimal​ place.) The capital gain rate is nothing​%. ​(Round to one decimal​ place.) The total return is nothing​%. ​ (Round to one decimal​ place.)

Answer 1

Explanation:

The computation is shown below::

The dividend yield = Annual dividend ÷ Market share price

where,

Market share price = $22 per share

Annual dividend = $0.88 per share

So, the dividend yield = ($0.88 per share ÷ $22 per share) × 100

= 4.0%

The capital gain rate is

= (Expected share price - initial price) ÷ (Initial price) × 100

= ($23.54 - $22) ÷ ($22) × 100

= $1.54 ÷ $22 × 100

= 7.0%

Now the total return is

=(Expected share price + expected dividend - initial price) ÷ (Initial price) × 100

= ($23.54 + $0.88 - $22) ÷ ($22) × 100

= $2.42 ÷ $22 × 100

= 11.0%