The constant growth valuation formula has dividends in the numerator. Dividends

Question

The constant growth valuation formula has dividends in the numerator. Dividends are divided by the difference between the required return and dividend growth rate as follows: D1 Po- (rs- g) If you were analyzing the consumer goods industry, for which kind of company in the industry would the constant growth model work best? O All companies O Young companies with unpredictable earnings Mature companies with relatively predictable earnings Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $2.25 at the end of the year. Its dividend is expected to grow at a constant rate of 8.50% per year. If Walter's stock currently trades for $15.00 per share, what is the expected rate of return? O 9.93% O 18.40% O 8.64% 23.50% walter's dividend is expected to grow at a constant growth rate of 8.50% per year. what do you expect to happen to Walter's expected dividend yield in the future? O It will stay the same. O It will decrease. O It will increase.

Explanation / Answer

1.

Mature companies with relatively predicable earnings

because these comanies would likely to have constant growth ,so above is the answer

2.

expected rate=(2.25/15)+8.50%=23.50%

the above is answer using constant growth formula

3.

it will stay the same

the above is the answer

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