SCI just paid a dividend (Do) of $2.40 per share, and its annual dividend is exp
ID: 2784374 • Letter: S
Question
SCI just paid a dividend (Do) of $2.40 per share, and its annual dividend is expected to grow at a constant rate (g) of 5.00% per year. If the required return (rs) on SCI's stock is 12.50%, then the intrinsic value of SCI's shares is per share. Which of the following statements is true about the constant growth model? The constant growth model implies that dividend growth remains constant from now to infinity. The constant growth model implies that dividends remain constant from now to a certain terminal year. Use the constant growth model to calculate the appropriate values to complete the following statements about Super Carpeting Inc. If SCI's stock is in equilibrium, the current expected dividend yield on the stock will be per share. per share SCI's expected stock price one year from today will be If SCI's stock is in equilibrium, the current expected capital gains yield on SCI's stock will beExplanation / Answer
According to dividend-discount model,
P0 = D1/(R-G)
P0 = Current stock price
D1 - Dividend at t =1
R - Required rate
G - Growth rate
P0 = 2.4*(1+0.05)/(0.125-0.05) = 33.60
Share price = $33.60
- Option 1. Constant growth model assumes that the dividend growth remains constant from now to infinity.
b.
1.
Expected dividend yield = Current dividend/Price = 2.4/33.6 = 0.0714 = 7.14%
2.
Stock price one year from now,
P1 = D2/(R-g) = 2.52*1.05/(0.125-0.05) = $35.28
3.
Capital gains yield = expected rate - dividend yield = 12.5% - 7.14% = 5.36%
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