In the first problem they have mentioned that the company
will pay dividend of $6 and have not yet paid, so it means it the dividend of next year.
However, in the second problem they have mentioned that they have paid the dividend of $3 for the past 12 month that means it is D0 and not D1 (Next Dividend), so to arrive at next dividend they multiplied it by growth rate (1 + 0.06).
So basically in both the problems, the dividend used was Next Dividend.
------------------------------
Ashvin Kulkarni
Accountant
Pune
India
------------------------------
Original Message:
Sent: 10-02-2020 01:37 PM
From: Muhammad Usman Cheema
Subject: Cost of New Capital
Dear Members,
Can you please share the logic. When calculating Cost of New Common Stock, at times the formula used is "Next Dividend/Net Proceeds +Growth Rate" and at times the formula used is "Dividend/Net Proceeds+Growth Rate"
Can you please explain why different formulas are used ? Please refer to below two questions