Question

Please only answer if you know for sure, thank you.

Super Carpeting Inc. just paid a dividend (D) 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 $34.80 $32.00 $33.12 $48.00 O Which of the following statements is true about the constant growth model? When using a constant growth model to analyze a stock, if an increase in the required rate of return occurs while the growth rate 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 required rate of return occurs while the growth rate remains the same, this will lead to an increased value of the stock. Use the constant growth model to calculate the appropriate values to complete the following statements about Super Carpeting Inc.: • If Super's stock is in equilibrium, the current expected dividend yield on the stock will be • Super's expected stock price one year from today will be • If Super's stock is in equilibrium, the current expected capital gains yield on Super's stock will be

Answer 1

1)

Intrinsic value = D1 / required rate - growth rate

Intrinsic value = [1.68 (1+ 3.5%) ] / 0.0875 - 0.035

Intrinsic value = 1.7388 / 0.0525

Intrinsic value = $33.12

2)

When using a constant growth model to analyze a stock, an increase in the required rate of return occurs while growth rate remains the same, this will lead to a decreased value of stock

3)

Dividend yield = (D1 / price) * 100

Dividend yield = [1.68 (1+ 3.5%) / 33.12] * 100

Dividend yield = [1.7388 / 33.12] * 100

Dividend yield = 5.25%

Price in 1 year = 33.12 (1 + 0.035)

Price in 1 year = 34.2792

Capital gains yield = [(34.2792 - 33.12) / 33.12] * 100

Capital gains yield = 3.50%