Which step in the process of measuring external transactions involves assessing the equality of
1 answer:
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The company's cost of equity is % of retained earnings according to the capm.
The cost of equity for a corporation is the amount that the market is willing to pay to own an asset and take on ownership risk. The two common methods for determining the cost of equity are the capital asset pricing model and dividend capitalization model. On the right side of the balance sheet, you can see a list of the company's debt and equity accounts. The cost of capital refers to the price a business must pay to finance its operations through debt, equity, or a mix of the two.
b = rs = rRF + b(RPM), and rRF + b(RPM) =
% RPM
% were lent to us.
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Answer:
$30.2067
Explanation:
From the given question, using the dividend discount model
where:
r is the Expected return on stock and be calculated as:
Expected return on stock = Risk free rate + Beta × (Expected Market Return - Risk free rate)
Expected return on stock = 5% + 1.25 × (14% - 5%) = 16.25%
However, the current price in this process will b used as the dividend price for all future expenses.
Dividend Yield = Current Dividend/The Share Price
Current dividend D0 = 6% × $25.00 = $1.50
D₁ = D₀ × (1 + g)
D₁ = 1.5 × (1 + g)
Thus, we can now employ the use of the growth dividend model (constant) to determine the value of g as follows:
By cross multiply, we have:
4.0625 - 25g = 1.5 + 1.5g
collect like terms, we have:
4.0625 - 1.5 = 1.5g + 25g
2.5625 = 26.5g
Divide both sides by 26.5, we have:
2.5625/26.5 = 26.5g/26.5
g = 9.67%
Similarly, suppose the value for the second year-end to be Y₂;
Then the constant growth dividend model can be computed as:
where;
D₃ = D₂ × (1 + g)
D₂ × (1 + g) = D₁ × (1 + g) × (1 + g)
D₁ × (1 + g) × (1 + g) = D₀ × (1 + g) × (1 + g) × (1 + g)
D₁ × (1 + g) × (1 + g) = D₀ × (1 + g) × (1 + g) × (1 + g) = D₀ × (1 + g) × 3
D₃ = 1.5 × (1 + 9.67%) × 3
D₃ = $1.9876
Finally:
Y₂ = $30.2067