The Jacky-Wood Co. just paid a dividend of $ 1.60 per share on its stock. The di

Question

The Jacky-Wood Co. just paid a dividend of $ 1.60 per share on its stock. The dividends are anticipated to grow at a constant rate of 6 percent per year forever. If investors require a 12 percent return on The Jacky-Wood Co. stock, what is the current price? What will the price be in three years? In 15 years? The next dividend payment by Tonot, Inc., will be $2.50 per share. The dividends are expected to maintain a 5 percent growth rate indefinitely. If the stock currently sells for $48.00 per share, what is the required return? For the Tonot, Inc. Company in problem 2, what is the dividend yield? What is the expected capital gains yield?

Explanation / Answer

Since question has less than 4 parts hence we are answering first part only as per Q&A guidelines.

Solution: As per dividend growth model : P = D1 Where P = Current market price K-g D1 = Next year dividend K = Required rate of return g = Growth rate Current market price P = 1.7 D1 = 1.60*1.06 0.12-.06 P = $28.33 Price in 3 years P = 2.02 D4 = 1.60*(1.06)4 0.12-0.06 P = $33.67 Price in 15 years P = 4.06 D16= 1.60*(1.06)16 0.12-0.06 P = $67.67

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