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Realised Yield Method - Cost of equity share capital (in Hindi)
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This video covers Realised Yield Method - Cost of equity share capital

U
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thanks a lot mam 😘😘
Ar
not clear equity method
ma'am as the value of dividend is 100 for all the years then we should take value of discounting factors from annuity table naa?? shyd? as there is constant dividend for all tge years!
excellent 👍👍👍
very nice
1. Cost of Capital By Heena Malhotra

2. Cost of Capital Cost of Retained Cost and Weight Earning Cost of Combination of Cost of Equity Cost of Debt Preference Share of each sources of Capital Weighted Average Cost of Capital (WACC) By Heena Malhotra

3. COST OF EQUITY SHARE CAPITAL-Methods O Dividend price basis O Dividend price plus growth basis O Earning/price basis O Earning/price plus growth basis O Realised Yield basis O CAPM By Heena Malhotra

4. Realised Yield Method o One of the serious limitations of using dividend yield method or earnings yield method is the problem of estimating the expectations of the investors regarding future dividends and earnings. o It is not possible to estimate future dividends and earnings correctly; both of these depend upon so many uncertain factors. O To remove this drawback, realised yield method which takes into account the actual average rate of return realised in the past may be applied to compute the cost of equity share capital. oTo calculate the average rate of return realised, dividend received in the past along with the gain realised at the time of sale of shares should be considered. The cost of equity capital is said to be the realised rate of return by the shareholders. By Heena Malhotra

5. For Example O Mr. Mehra had purchased a share of Alpha Limited for Rs. 1,000. He received dividend for a period of five years at the rate of 10 percent. At the end of the fifth year, he sold the share of Alpha Limited for Rs. 1,128. You are required to compute the cost of equity as per realised yield approach By Heena Malhotra

6. O The realised rate of return is the discount rate o which equates the present value of the dividends received in the past five years the purchase price of Rs.1,000. percent approximately o plus the present value of sale price of Rs. 1,128 to O The discount rate which equalises these two is 12 By Heena Malhotra

7. Dividend ( ) Sale Proceeds ( ) Discount Factor @ 12% 1100 2 100 3 100 4 100 5 100 6 Begining 1128 Present Value@ 89.3 79.7 71.2 63.6 56.7 639.576 1,000.076 Year 0.893 0.797 0.712 0.636 0.567 0.567 By Heena Malhotra

8. Realised Yield Method o This method of computing cost of equity share capital is based upon the following assumptions: o (a) The firm will remain in the same risk class over the period. o (b) The shareholders expectations are based upon the past o (c) The investors get the same rate of return as the realised o (d) The market price of shares does not change significantly. realised yield. yield even if they invest elsewhere; By Heena Malhotra