5. Constant growth stocks Aa Aa Super Carpeting Inc. just paid a dividend (Do) o

Question

5. Constant growth stocks Aa Aa Super Carpeting Inc. just paid a dividend (Do) of $1.68, and its dividend is expected to grow at a constant rate (g) of 3.50% per year. If the required return (rs) on super's stock is 8.75%, what is the intrinsic value of Super's shares? O $33.12 per share O $34.80 per share $34.28 per share O $36.02 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 less than its required return The constant growth model can be used if a stock's expected constant growth rate is more than its required return

Explanation / Answer

intrinsic value of stock 33.12 expected dividend 1.7388 growth rate 3.50% required rate of return 8.75% TRUE the constant growth model can be used if a stock expected constant dividend growth rate is less than required retun answer to 3 dividend yield 5.25 percent expected stock price one year from today 34.2792 expected dividend 1.799658 expected capital gain Yield 0.035 3.50% answer to 4 the capital gain yield on a stock that an investor already owns has a direct relationship with the firms expected future stock price answer no 5 expected rate of return (expected dividend/market price)+g *100 0.182777778 18.27%

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