Question

Krell Industries has a share price of $21.25 today. If Krell is expected to pay a dividend of $1.06 this​ year, and its stock price is expected to grow to $24.73 at the end of the​ year, what is​Krell's dividend yield and equity cost of​ capital?

A) Krell's dividend yield is?

B) Krell's capital gain rate is?

C) Krell's equity cost of capital, or expected total return is?

Answer 1

A)

Dividend yield = Expected dividend / Current price * 100

                          = 1.06/21.25*100

                         = 4.99%

 

B)

Capital gain rate = (Price after one year - Current price)/Current price *100

                              = (24.73 - 21.25)/21.25 *100

                             = 3.48/21.25*100

                             = 16.38%

 

C)

Expected total return = Dividend yield + Capital gain rate

                                       = 4.99% + 16.38%

                                        = 21.37%

A) Dividend yield = 4.99%

B) Capital gain rate = 16.38%