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Cost of capital

nidhi (student) (346 Points)

11 October 2014

"The NEXT YEAR expected dividend is Rs 2 per share with an annual growth rate of 5%" what should be the value of D1 or dividend taken while calculating cost of equity?

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Kishor Bhat (CA final CS executive (from Bangalore)) (1881 Points)
Replied 11 October 2014

Am explaining with instance..Next year say 2nd year u r expecting rs2 per share. Imagine in the 2nd year U have received wat u expected i.e rs2 per share..so this become the base year for finding next year's dividend D3 (for 3rd year)..so the formula is D3=D2(1+g) = 2(1+0.05) = Rs 2.1 Here, D3=D1 i.e dividend for the next year. D2=D0(Dzero) i.e dividend for current year. g=growth rate=5%=0.05 So the D1 is Rs2.1