Anle Corporation has a current stock price of $24.81 and is expected to pay a di

Question

Anle Corporation has a current stock price of $24.81 and is expected to pay a dividend of $1.20 in one year. Its expected stock price right after paying that dividend is $26.62 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? a. What is Anle's equity cost of capital? Anle's equity cost of capital is %. (Round to two decimal places.) b. How much of Anle's equity cost of capital is expected to be satisfied by dividend yield and how much by capital gain? The portion of Anle's equity cost of capital that is expected to be satisfied by the dividend yield is | %. (Round to two decimal places.) The portion of Anle's equity cost of capital that is expected to be satisfied by capital gains is %. (Round to two decimal places.) Enter your answer in each of the answer boxes.

Explanation / Answer

Growth rate=(26.62-24.81)/24.81

=7.30%(Approx)

a.Cost of capital=(Dividend for next period/Current price)+Growth rate

=(1.2/24.81)+0.073

=12.13%(Approx)

b.

Dividend yield=Dividend/Current price

=(1.2/24.81)=4.84%(Approx)

Capital gains yield=Growthr rate=7.3%(Approx).

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