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:

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%

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