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market price per share is 3.20
dividend yield 4%, dividend cover 3
what is p/e ratio ?
kindly explain how it isco has gearing ratio (debt ;(equity+debt))of 30% and pay corporation tax 25% co hjas asset (ungeared) beta 1.2 .the risk free rate 5% market return 12 %
whast is cost of equity
?Dear Sonia ,
for Question 1
Formula PE = 1 / (divi cover x divi yield)
PE = 1 / (3 x 0.04) = 8.33
Dear John please correct me if I am wrong.
plc has share price 5.20 at the end of the year which is .60 higher than it was start of the year
during the year they have pay .45 dividend per share
what is shareholder return for the year ?Dear Sonia,
For PLC
Share price at the start of the year 5.2 – 0.6 = 4.6
Growth during the year = 0.6/4.6 x 100 = 13%Dividend Valuation method = .45(1+0.13)/5.2
so the shareholder return is 9.78%Correct me if i am wrong Mr.John
Farzain: Please do not answer in this forum – it is Ask the Tutor Forum, and you are not the tutor (and you answer to the last question is not correct).
Sonia: For question 1, farzain is correct
For question 2:
Because gearing is given as (debt/(equity+debt), it means that for every 30 debt there is 70 equity.
It is always the equity beta that determines the cost of equity.
So using the asset beta formula:1.2 = ( 70 / (70 + 22.5)) x equity beta
So equity beta = 1.2 x 92.5/70 = 1.586
Using this in the normal CAPM formula:
cost of equity = 5% + 1.586 (12% – 5%) = 16.10%
Your third question:
The question asks for the return for the year (not for the cost of equity)
The share price at the start of the year was 5.20 – 0.60 = 4.60
The returns during the year were a dividend of 0.45 plus a capital gain of 0.60, so a total of 1.05.
Therefore the % return over the year = 1.05 / 4.60 = 22.83%
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