The next dividend payment by Hoffman, Inc., will be $2.50 per share. The dividends are anticipated to maintain a growth rate of 5.75 percent forever. Assume the stock currently sells for $48.60 per share. |
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What is the expected capital gains yield? |
HI
Here next dividend D1 = $2.50
growth rate g= 5.75%
required return k = D1/P0 +g
= 2.5/48.60 + 0.0575
= 10.89%
So capital gin yield = (P1-P0)/P0
P1 = D2/(k-g)
P1 = D1*(1+g)/(k-g)
=2.5*(1+5.75%)/(10.89%-5.75%)
= 51.3945
Capital gain yield = (51.3945-48.60)/48.60
= 5.75%
Thanks
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