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Chrome File Edit View History Bookmarks People Window Help Home l Search Textbook Sol XM Inbox Chttps://ng 4572&nbNodeld-317510246;&eISBN;+9781305635975#1a FIN 331 AOL FINAL REVIEW Due Tomorrow at 4 PM CDT 8. Constant growth stocks SCI just paid a dividend (Do) of $2.88 per share, and its annual dividend is expected to grow at a constant rate (9) of 6.00% per year. If the required return (r.) on SC's stock is 15.00-then the intrinsic vale osa's shares is per share. Which of the following statements is true about the constant growth model? O when using a const.ant growth model to analyze a stock, if an increase in the growth rate occurs while the required return remains the same, this will lead to an increased value of the stock. O when using a constant growth model to analyze a stock, if an increase in the growth rate occurs while te required return remains the same, this will lead to a decreased value of the stock Use the constant growth model to calaulate the appropriate values to complete the following statements about Super Carpeting Inc.: Ir SCI's stock is in equilibrium, the current expected dividend yield on the stock will be 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 be per share. per share. Graded

Explanation / Answer

D0 2.88 D1 3.0528 (2.88 x (1.06)) g 6% rs 15% as per growth model, P0 = D1/(rs - g) P0 3.0528/(.15-.06) $    33.92 Intrinsic value per share When using a constant growth model to analyze the stock, if an increase in the growth rate occurs while the required return remains the same, this will lead to an increased value of the stock. Current expected dividend yield = 3.0528/33.92 = 9% SCI's expected stock price one year from today will be 33.92 x 1.06 = $35.96 Current expected capital gain yield will be (35.96-33.92)/33.92 = .06 or 6%

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