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

$ 1.44

Step-by-step 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 =
`$(D)/(r-g)$`

`$\$ 38=(D)/((0.152-0.114))$`

`$\$ 38=(D)/(0.038)$`

D = 38 x 0.038

= 1.44

Therefore, the dividend = $ 1.44