Question

please answer last three questions:)

Urban Drapers has a sister company named Super Carpeting Inc. (SCI). SCI just paid a dividend (Do) of $2.88 per share, and its annual dividend is expected to grow at a constant rate (gL) of 6.00% per year. If the required return (rs ) on SCI's stock is 15.00%, then the intrinsic value of SCI's shares is $33.62 per share. (Note: Round intermediate calculations and your final answer to two decimal places.) Which of the following statements is true about the constant dividend growth model? When using a constant growth model to analyze a stock, if an increase in the growth rate occurs while the required return remains the same, this will lead to a decreased value of the stock When using a constant growth model to analyze a stock, if an increase in the dividend growth rate occurs while the required return remains the same, this will lead to an increase in the value of a stock Use the constant dividend 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 approximately per share. SCI's expected stock price one year from today will be approximately per share. If SCI's stock is in equilibrium, the current expected capital gains yield on SCI's stock will be approximately per share.

Answer 1

Current price = 2.88(1.06)/9% =$33.92

Dividend yield = expected dividend/current price

= 2.88(1.06)/33.92

= 9.00%

Stock price one year from today = 2.88(1.06)^2/(15%-6%)

=$35.96

Capital gains yield = (Price after one year- current price)/current price

=(35.96-33.92)/33.926

= 6.01%

I.e. 6%