CMA Study Group

Cost of New Capital

  • 1.  Cost of New Capital

    Posted 17 days ago
    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


  • 2.  RE: Cost of New Capital

    Posted 17 days ago
    Hello,

    In both the problems you have mentioned above, they have used the D1 that is Next Dividend.

    ------------------------------
    Ashvin Kulkarni
    Accountant
    Pune
    India
    ------------------------------



  • 3.  RE: Cost of New Capital

    Posted 17 days ago
    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
    ------------------------------



  • 4.  RE: Cost of New Capital

    Posted 17 days ago
    /T

    发自我的华为手机