Back to Assignment Average: 13 Attempts: 7. Constant growth stocks Super Carpeti
ID: 2825141 • Letter: B
Question
Back to Assignment Average: 13 Attempts: 7. Constant growth stocks Super Carpeting Inc. just paid a dividend (D0) of $2.64, and its dividend is expected to grow at a constant rate (a) of 3.85% per year If the required return (r.) on Super's stock is 9.63%, then the intrinsic, or theoretical market, value of Super's shares is Which of the following statements is true about the constant growth model? per share O When using a constant growth model to analyze a stock, if an increase in the required rate of return occurs while the growth rate remains the same, this will lead to an increased value of the stock When using a constant growth model to analyze a stock, if an increase in the required rate of return occurs while the growth rate remains the same, this will lead to a decreased value of the stock. O Use the constant growth model to calculate the appropriate values to complete the following statements about Super Carpeting Inc. . If Super's stock is in equilibrium, the current expected dividend yield on the stock will be Super's expected stock price one year from today will be . If Super's stock is in equilibrium, the current expected capital gains yield on Super's stock will be per share. e per share. per share Grade It Now Save & Continue Continue without savingExplanation / Answer
a. intrinsic value = 2.64 * 1.0385/(0.0963 - 0.0385) = 47.43
option B
dividend yield = 9.63% - 3.85% = 5.78%
expected price in one year = 47.43*1.0385 = 49.26
capital gains yield = 3.85%
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