Chapter 7, Problem 11P

Summary Introduction

Equity cost of capital: Cost of capital is the best alternative cost of an investment. The benefit that an investor could receive by putting the same money into other investment with equal risk is the cost of capital of an investment.

Dividend yield: Dividend received during the year divided by the purchase price of the stock gives the dividend yield. Shareholders who invest in shares expect return in the form of dividends. Dividend yield is the percentage return that the shareholder foresees to earn from dividend paid by share in a year.

To determine:

The dividend yield .and cost of capital at the end of the year.