Nielson Motors has a share price of $25 today. If Nielson Motors is expected to pay a dividend of $0.75 this year, and its stock price is expected to grow to $26.75 at the end of the year, then Nielsen's dividend yield and equity cost of capital are:

Cost of equity = 9.6%

Dividend Yield = 3.0%

Explanation:

Growth rate in dividend

growth rate in dividend = (Price in year 1/Price now) - 1

= (26.75/25) - 1

=6.6%

Cost of equity

(Ke) = (D (1+g) / P) + g

ke - cost of equity, Div in year 0, P = ex-div market price, g = growth rate in div.

0.75/25 + 0.066

=9.6%

Dividend Yield

DY = Dividend/current price share

= (0.75/25) * 100

= 3.0%

Dividend Yield = 3%

Equity cost of capital = 10%

Explanation:

Dividend yield is a financial ratio which is used by investors to assess a company's annual dividend payout in comparison of its stock price. The formula for dividend yield ratio is:

Annual dividend / Stock price

$0.75 / $25 = 3%

Equity cost of capital is the rate of return required by the investors of equity. This is the rate which a company must pay to raise funds. The formula for finding equity cost of capital is:

Dividend Yield + (Expected Stock price - Stock price today) / Stock price today

3% + ($26.75 - $25) / $25 = 10%