Question

5. Constant growth stocks Super Carpeting Inc. (SCI) just paid a dividend (D<sub>0</sub>) of $2.40 per share, and its annual dividend is expected to grow at a constant rate (g) of 5.00% per year. If the required return (r<sub>s</sub>) on SCI's stock is 12.50%, then the intrinsic value of SCI's shares is $33.60 per share. Which of the following statements is true about the constant growth model? 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. Use the constant growth model to calculate the appropriate values to complete the following statements about Super Carpeting Inc.: • 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 $33.60 per share. • If SCI's stock is in equilibrium, the current expected capital gains yield on SCI's stock will be per share.

          5. Constant growth stocks
Super Carpeting Inc. (SCI) just paid a dividend (D<sub>0</sub>) of $2.40 per share, and its annual dividend is expected to grow at a constant rate (g) of 5.00%
per year. If the required return (r<sub>s</sub>) on SCI's stock is 12.50%, then the intrinsic value of SCI's shares is $33.60 per share.
Which of the following statements is true about the constant growth model?
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.
Use the constant growth model to calculate the appropriate values to complete the following statements about Super Carpeting Inc.:
• 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 $33.60 per share.
• If SCI's stock is in equilibrium, the current expected capital gains yield on SCI's stock will be ______ per share.

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5. Constant growth stocks
Super Carpeting Inc. (SCI) just paid a dividend (D<sub>0</sub>) of 2.40 per share, and its annual dividend is expected to grow at a constant rate (g) of 5.00%
per year. If the required return (r<sub>s</sub>) on SCI's stock is 12.50%, then the intrinsic value of SCI's shares is $33.60 per share.
Which of the following statements is true about the constant growth model?
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.
Use the constant growth model to calculate the appropriate values to complete the following statements about Super Carpeting Inc.:
• 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 be33.60 per share.
• If SCI's stock is in equilibrium, the current expected capital gains yield on SCI's stock will be per share.

Added by Michael A.

Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

Instant Answer

Solved by Expert Akash M

08/16/2023

Step 1

The dividend yield is the expected dividend divided by the current stock price. We can use the formula: \[ \text{Dividend Yield} = \frac{D}{P_0} \] Where: D = current dividend = $2.40 P_0 = current stock price Show more…

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5.Constant growth stocks Super Carpeting Inc.SCIJust paid a dividend D of sz.40 per share,and its annual dividend Is expected to grow at a constant rate g) of 5.00% per year.If the required return ron SCI's stock is 12.50%then the intrinsic value of SCI's shares is $33.60 per share. Which of the following statements is true about the constant growth model? The constant growth model can be used if a stock's expected constant growth rate is less than its required return O The constant growth model can be used if a stock's expected constant growth rate is more than its required return. Use the constant growth model to calculate the appropriate values to complete the following statements about Super Carpeting Inc.: If SCI's stock is in equilibrium the current expected dividend yield on the stock will be W.per share. SCI's expected stock price one year from today will be $33.60 per share. If SCI's stock is in equilibriumthe current expected capital gains yield on SCI's stock will be /pershare.

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Transcript

00:01 Here the question is in different part at part a we need to determine the expected growth rate.

00:06 It is g is equal to formula is roe multiplied by retention ratio.

00:12 So here let's put the values given in a question 14 % multiply by 0 .35.

00:19 So here we got the growth rate of dividend is 4 .9 % now, let's move towards the b part of question to determine the price earnings to p even how we can find out payout ratio divided by required rate of return minus growth rate.

00:38 So this is the formula.

00:40 Let's plug the values here 0 .65 divided by 0 .145 minus 0 .049.

00:48 So here we got 0 .65 divided by 0 .096, which is 6 .77 approximately.

00:56 Now here let's move towards the b part of the question to calculate the stock price.

01:04 So here for the stock price, the formula is even multiplied by p slash even.

01:12 So let's plug the values here $10 multiplied by 6 .77.

01:18 So we got 67 .70.

01:20 Now, let's move towards the next part of the question, which is d part.

01:26 So here we need to calculate the stock price using the dividend discount model stock price using dividend discount model.

01:37 So here d1 divided by required rate of return minus growth rate.

01:42 Now, let's plug the values here 6 .50 divided by 0 .145 minus 0 .049.

01:51 So here we got 67 .71 dollar.

01:56 This is the stock price using discounted thing...

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