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ookmarks PeopleWindowHelp g Aplia: Student Question takeQuiz&quiz;, probGuid QNAPCOA8010100000041ca2680080000 Due Sunday 06.24.18 at 11:45 PM s://courses.aplia.com/af/servlet Graded Assignment Attempts: 3 Keep the Highest: 3/5 s. Constant growth stocks SCI just paid a dividend (Do) of $1.92 per share, and its annual dividend is expected to grow at a constant rate (9) of Aa Aa 4.00% per year. If the required return (rs) on Sci's stock is 10.00%, then the intrinsic value of SC's shares is per share. which of the following statements is true about the constant growth model? O The constant growth model can be used if a stock's expected constant growth rate is more than its req return. 0 The constant growth model can be used if a stock's expected constant growth rate is less than its required return. use the constant growth model to calculate the appropriate values to complete the following statements about Carpeting Inc.: Super If SCI's stock is in equilibrium, the current expected dividend yield on the stock will be per share. SCI's expected stock price one year from today will be per share. . I SCI's stock is in equilibrium, the current expected capital gains yield on sci's stock will be 4Explanation / Answer
D0 = $1.92
g = 4% and
r = 10%, D1 = D0*(1+g)
The formula for a Constant Growth dividend:
Stock Price Today (P0) = Next Div(D1) / (Required Rate of Return(r) - Constant Growth rate(g))
Stock price = (1.92 x 1.04) / 0.10 - .04
= 1.9968 / .06
= $33.28
Stock Price = $ 33.28
2.
ANSWER = a) The constand growth model can be used if a stock's expected constant growth rate is more than its required return.
This is because in the above equiation, the inctrinsic value is equal to dividend for next year divided by Return less growth, if growth rate is Greater than return then the denominator becomes negative. in such a case we will get a negative intrinsic value of a stock.
3. Dividend yield = Annual dividend / Current stock
= 1.9968 / 33.28
= 6%
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