Ask Question
28 June, 12:21

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?

+1
Answers (1)
  1. 28 June, 12:29
    0
    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%
Know the Answer?
Not Sure About the Answer?
Find an answer to your 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 ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers