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If the formula(s) is/are

Price = D (1+G) / R - G

Market Value of share = D/R

D = the dividend R = return on equity G = growth rate

nominal value £0.65 current market value ££67.31

current level of dividend is £0.61 grows at a compound rate of 8.9% per year

What is the cost of ordinary shares?

As you can see I dont have a return on equity, so ive tried using Market Value of share = D/R and flipping it to get R = D/Market Value of share.

My answers are somtimes in the negative or too low.

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1 Answer 1

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All calculations are per share basis

Dividend Yield Approach:

Cost of Ordinary Share $= \frac{D_0(1+g)}{MV} + g$

Cost of Ordinary Share $= \frac{0.61(1+0.089)}{67.31} + 0.089$

Cost of Ordinary Share $ = 0.0988691$

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  • $\begingroup$ If I was to calculate the WACC, then could I use that information to calculate the ordinary shares using the Dividend Valuation Model? $\endgroup$
    – Maestro
    May 18, 2017 at 13:46
  • $\begingroup$ You need cost of debt and and debt to equity ration to complete the calculation of WACC\ $\endgroup$ May 18, 2017 at 14:53
  • $\begingroup$ Which I dont have. Very difficult assignment! $\endgroup$
    – Maestro
    May 19, 2017 at 14:55

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