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If the question stated that the dividend per share is $0.32, earning per share is $0.64 and the dividend growth is 5%. Cost of capital is 12%. how do we calculate the market price of the share. i can’t find the formula in the BPP Textbooks.
and does difference in cost of capital and growth in dividend represent the dividend yield?
You can use the dividend growth formula – it should be in the BPP book, because it is on the formula sheet that you get given in the exam!
The formula is that Po = Do(1+g)/(Re-g)
Dividend yield is latest dividend divided by market value (as a percentage). It does not relate to the cost of capital (although it does ignore the potential growth in dividends).
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