The next dividend payment by Wyatt, Inc., will be $2.50 per share. The dividends

Question

The next dividend payment by Wyatt, Inc., will be $2.50 per share. The dividends are anticipated to maintain a growth rate of 5.75 percent, forever.

If the stock currently sells for $48.60 per share, what is the required return? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

The next dividend payment by Wyatt, Inc., will be $2.90 per share. The dividends are anticipated to maintain a growth rate of 7.75 percent, forever. Assume the stock currently sells for $49.40 per share.

What is the dividend yield? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

What is the expected capital gains yield? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

The next dividend payment by Wyatt, Inc., will be $2.50 per share. The dividends are anticipated to maintain a growth rate of 5.75 percent, forever.

Explanation / Answer

1. According to Constant Growth Model:

Stock Price = D / r - g

D = Dividend, r = Required Rate of Return, g = Growth Rate

48.60 = 2.50 / r - 0.0575

48.60 (r - 0.0575) = 2.50

r = 10.89

2. Dividend Yield = D / P

D= Dividend , P = Price

Dividend Yield = 2.90 / 49.40

Dividend Yield = 5.87

3. Capital Gain Yield: P1 - P0 / P0

P1 = Stock Price of Next Year, P0 = Current Year Price,

P1 = P0(1 + g)

P1 = 49.40 (1 + 0.0775) = $53.23

Capital Gain Yield = 53.23 - 49.40 / 49.40

Capital Gain Yield = 7.75

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.