Anle Corporation Case

UH ‐ FINA6A35 ‐ MANAGERIAL FINANCE
CHAPTER 9 PROBLEMS
2. Anle Corporation has a current price of $20, is expected to pay a dividend of $1 in one year, and its expected price right after paying that dividend is $22.
a. What is Anle’s expected dividend yield?
Dividend Yield = Div1 / P0 =

=1/20 =

5.0%

b. What is Anle’s expected capital gain rate?
Capital Gain = (P1 ‐ P0) / P0

= (22 ‐ 20 ) / 20 =

10.0%

c. What is Anle’s equity cost of capital?
Equity Cost of Capital = Div1/P0 + (P1 ‐ P0) / P0 =

15.0%

7. Dorpac Corporation has a dividend yield of 1.5%. Dorpac’s equity cost of capital is 8%, and its dividends are expected to grow at a constant rate.
a. What is the expected growth rate of Dorpac’s dividends?
Div. Yield = 1.5% = Div1 / P0
P0 =Div1 /
yield x P0 / P0 g = 8% ‐ 1.5% =

6.5%

Growth rate = g = 6.5%
b. What is the expected growth rate of Dorpac’s share price? rE = Div1 / P0 + (P1 ‐ P0) /P0
(P1 ‐ PO) / P0 = rE ‐ Div1/P0
(P1 ‐ PO) / P0 = rE ‐ Div yield

= 8%‐1.5% =

Growth rate of Dorpac’s share price = 6.5%

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