ADB's current share price is Rs20 and it is expected to pay a Rs1 dividend per share next year. After that, the firm's dividends are expected to grow at a rate of 4% per year. a) What ADB's cost of equity? b) ADB also has preferred stock outstanding that pays a Rs2 per share fixed dividend. If this stock is currently priced at Rs28, what is ADB's cost of preferred stock? c) ADB has existing debt issued three years ago with a coupon rate of 6%. The firm just issued new debt at par with a coupon rate of 6.5%. What is ADB's pre-tax cost of debt? d) Explain why the pre-tax cost of debt is not relevant for the calculation of the Weighted Average Cost of Capital. e) ADB has 5 million common shares outstanding and 1 million preferred shares outstanding, and its equity has a total book value of Rs50 million. Its liabilities have a market value of Rs 20 million. If ADB's common and preferred shares are priced as in parts (a) and (b), what is the total market value of ADB's equity and liabilities? f) ADB faces a 35% tax rate. Given the information in parts (a) – (d), and your answers to those problems, what is ADB's Weighted Average Cost of Capital?
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
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please question d) e) and F) have not been replied above.
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