Cypress Oaks Co. is currently priced at $98.18 per share and is expected to distribute a dividend of $6.94 in one year's time. Furthermore, the company's share price is

anticipated to increase to $112.91 in the same timeframe.

Part A: What is the dividend yield of Cypress Oak Co.? (1 mark)

%

(Please answer to 2 decimal places)

Part B: What is the capital gain yield of Cypress Oak Co.? (1 mark)

%

(Please answer to 2 decimal places)

Part C: What is the cost of equity of Cypress Oak Co.? (1 mark)

%

To solve the problem, we'll use the following formulas:

### Part A: Dividend Yield

The dividend yield is calculated by the following formula:

\[
\text{Dividend Yield} = \left(\frac{\text{Dividend per Share}}{\text{Current Share Price}}\right) \times 100
\]

Given:
- Current Share Price = $98.18
- Dividend per Share = $6.94

\[
\text{Dividend Yield} = \left(\frac{6.94}{98.18}\right) \times 100 \approx 7.07\%
\]

### Part B: Capital Gain Yield

The capital gain yield is calculated using:

\[
\text{Capital Gain Yield} = \left(\frac{\text{Future Share Price} - \text{Current Share Price}}{\text{Current Share Price}}\right) \times 100
\]

Given:
- Future Share Price = $112.91
- Current Share Price = $98.18

\[
\text{Capital Gain Yield} = \left(\frac{112.91 - 98.18}{98.18}\right) \times 100 \approx 15.01\%
\]

### Part C: Cost of Equity

The cost of equity is the sum of the dividend yield and the capital gain yield:

\[
\text{Cost of Equity} = \text{Dividend Yield} + \text{Capital Gain Yield}
\]

Using the values from Parts A and B:

\[
\text{Cost of Equity} = 7.07\% + 15.01\% = 22.08\%
\]

### Final Answers:

- **Part A: Dividend Yield = 7.07%**
- **Part B: Capital Gain Yield = 15.01%**
- **Part C: Cost of Equity = 22.08%**

Would you like more details or have any questions?

Here are 8 related questions to expand your understanding:

1. How does the dividend yield affect an investor's decision to purchase a stock?
2. What factors could influence the future share price of a company?
3. How is the cost of equity used in financial decision-making?
4. Can a company have a negative capital gain yield? What would that indicate?
5. How does the risk profile of a company influence its cost of equity?
6. What other methods can be used to calculate the cost of equity besides the dividend discount model?
7. How do changes in market conditions affect the dividend yield and capital gain yield?
8. How is the cost of equity different from the cost of debt?

**Tip:** Remember, the cost of equity represents the return required by shareholders to compensate for the risk of investing in the company's stock. It's a crucial component in determining the company's weighted average cost of capital (WACC).

Learn how to calculate the dividend yield, capital gain yield, and cost of equity for Cypress Oak Co. based on its current and future share prices, and dividend per share. Understand the significance of these metrics in stock valuation.

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