Cost of Equity (Retained Earnings) Using DDM Dividend Discount Model Historical Dividends (2010-2014) Compound Continuous Compound Years 2016 2017 2018 2019 2020 Dividends Per Share 2.29 2.69 1.35 1.90 2.80 Average DGR Current Year Expected Year Compound Continuous Compound DO Current DPS (2014) Expected DPS |(2015) Current Stock Price D1 Expected DPS (D1) = Current DPS*(1+g) PO 94.91 Cost of Equity (Retained Earnings) Using DDM Re D. R = +g . P = Stock Price D = Expected dividends per share Rg = Required return, or Cost of equity g=Dividends growth rate Capital Asset Pricing Model Cost of Equity (Retained Earnings) Using CAPM Capital Gain (loss) EGX100 Index Stock Return Returns Retrun(R)=In . P.-1 Stock Price Index Price 2010 2011 2012 D. 42.35 28.25 80.35 7051.03 9908.25 5221.68 2013 2014 44.87 94.91 2680.19 6315.05 Beta RE=R, +BE(E(Rm)R,) Rf 2.35% E (Rm) Risk-Free Rate of Return (T.Bills, T.Bonds) Market Index Average Return Market Risk Premium Cost of Equity (Retained Earnings) Using CAPM Cost of Debt (YTM, or Yield) 1000 Face Value of Bond F 116.36 Current Bond Quote Coupone Rate (Semi annual) Time to Maturity 5.2570% Tm 15 Years Cost of Bond Financing =Yield() Yield (YTM) Corporate Tax Rate c 40% Cost of Preferred Stock Annual Dividend per share 1.45 Cost of Preferred Stock Rp = D/P. Components of Capital Components of Capital 80,000,000 94.91 14,000,000 # Outstanding Common Stocks Current Stock Price # Outstanding Preferred Stocks Preferred Stock Price # Outstanding Bonds Face Value of Bond Current bond quote 94.91 6,000,000 1,000 116.3643112 Market Value of Common Stocks Market Value of Preferred Stocks Market Value of Debt (Bonds) Market Value of the Company Proportion of Common Stock Proportion of Preferred Stock Proportion of Debt (bonds) Sum Capital Structure WACC =(E/V)*R; +(D/V)*R, *(1-TC) WACC = Weighted Average Cost of Capital E/V)= Percentageof equity tototalvalue of capital R = Costof Equity (D/V)=Percentageof debt tototalvalue of capital Rp = Costof Debt Tc = Corporatetax rate Weighted Average Cost of Capital (WACC) Cost of Equity (Retained Earnings) Using DDM Dividend Discount Model Historical Dividends (2010-2014) Compound Continuous Compound Years 2016 2017 2018 2019 2020 Dividends Per Share 2.29 2.69 1.35 1.90 2.80 Average DGR Current Year Expected Year Compound Continuous Compound DO Current DPS (2014) Expected DPS |(2015) Current Stock Price D1 Expected DPS (D1) = Current DPS*(1+g) PO 94.91 Cost of Equity (Retained Earnings) Using DDM Re D. R = +g . P = Stock Price D = Expected dividends per share Rg = Required return, or Cost of equity g=Dividends growth rate Capital Asset Pricing Model Cost of Equity (Retained Earnings) Using CAPM Capital Gain (loss) EGX100 Index Stock Return Returns Retrun(R)=In . P.-1 Stock Price Index Price 2010 2011 2012 D. 42.35 28.25 80.35 7051.03 9908.25 5221.68 2013 2014 44.87 94.91 2680.19 6315.05 Beta RE=R, +BE(E(Rm)R,) Rf 2.35% E (Rm) Risk-Free Rate of Return (T.Bills, T.Bonds) Market Index Average Return Market Risk Premium Cost of Equity (Retained Earnings) Using CAPM Cost of Debt (YTM, or Yield) 1000 Face Value of Bond F 116.36 Current Bond Quote Coupone Rate (Semi annual) Time to Maturity 5.2570% Tm 15 Years Cost of Bond Financing =Yield() Yield (YTM) Corporate Tax Rate c 40% Cost of Preferred Stock Annual Dividend per share 1.45 Cost of Preferred Stock Rp = D/P. Components of Capital Components of Capital 80,000,000 94.91 14,000,000 # Outstanding Common Stocks Current Stock Price # Outstanding Preferred Stocks Preferred Stock Price # Outstanding Bonds Face Value of Bond Current bond quote 94.91 6,000,000 1,000 116.3643112 Market Value of Common Stocks Market Value of Preferred Stocks Market Value of Debt (Bonds) Market Value of the Company Proportion of Common Stock Proportion of Preferred Stock Proportion of Debt (bonds) Sum Capital Structure WACC =(E/V)*R; +(D/V)*R, *(1-TC) WACC = Weighted Average Cost of Capital E/V)= Percentageof equity tototalvalue of capital R = Costof Equity (D/V)=Percentageof debt tototalvalue of capital Rp = Costof Debt Tc = Corporatetax rate Weighted Average Cost of Capital (WACC)
