Trash company has a net income of 1,000,000 and a plow back ratio of 40%. There

Question

Trash company has a net income of 1,000,000 and a plow back ratio of 40%. There are 50,000 shares of stock outstanding. The company plans to increase dividends by 25% each year for the next 2 years and then apply a 2.25% growth rate to dividends each year indefinitely. The required return is 15%. What will this year's divden be? What should the stock price be today? What is this year's diviend yield? What is this year's capital gains yield? What will the stock price be in 3 years? what will dividend yield and capital gains yield be in 2 years?

Explanation / Answer

Plow Back Ratio= 1-(Annual Dividend per share/Earning Per Share) .40=1-(X/100000/50000) Annual Dividend Per Share=12 Stock Price = [15/(1+.15)^1]+[18.75/(1+.15)^2]+[1/(1+.15)^3[19.17/.15-.0225] Stock Price=126.081 Dividend Yield= DPS/ MPS 12/126.081*100 9.52%

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