Question

Anle Corporation has a current stock price of $ 23.65 and is expected to pay a dividend of $ 1.00 in one year. Its expected stock price right after paying that dividend is $ 25.86. a. What is​ Anle's equity cost of​ capital? b. How much of​ Anle's equity cost of capital is expected to be satisfied by dividend yield and how much by capital​ gain?

Answer 1

Answer and Explanation:

According to the scenario, computation of the given data are as follow:-

We can calculate the Anle’s equity cost of capital by using following formula:-

Equity Cost of Capital is

= (Expected Dividend + Stock Price Right After Paying Dividend - Current Stock Price) ÷ Current Stock Price

= ($1 + $25.86 - $23.65) ÷ $23.65

= $3.21 ÷ $23.65

= 0.1357

= 13.57%

Now

Dividend Yield = Expected Dividend ÷ Current Stock Price

= $1 ÷ $23.65

= 0.0423

= 4.23%

Capital Gain = (Stock Price Right after Paying Dividend - Current Stock Price) ÷ Current Stock Price

= ($25.86 - $23.65) ÷ $23.65

= $2.21 ÷ $23.65

= 0.0934

= 9.34%