Question

Nick's Marine Company (NMC) currently has a stock price per share of $38. If NMC's cost of equity capital (the discount rate for equity) is 15.2% and capital gains rate (gain/loss in prices relative to today's price) for the next year is expected to be 11.4%, the dividend in the upcoming year (t = 1) should be?

Answer 1

Answer:

$ 1.44

Explanation:

Given :

The stock price of 1 share = $ 38

The cost of equity capital, r = 15.2%

The capital gains rate for the next year, g = $ 11.4

Therefore, as per the dividend discount model,

The price per share = $\frac{D}{r-g}$

$\ 38=\frac{D}{(0.152-0.114)}$

$\ 38=\frac{D}{0.038}$

D = 38 x 0.038

   = 1.44

Therefore, the dividend = $ 1.44