question archive The BeautifulSunshine Company expects a constant growth in earnings and dividends of 4
The BeautifulSunshine Company expects a constant growth in earnings and dividends of 4
Subject:FinancePrice:2.87 Bought7
The BeautifulSunshine Company expects a constant growth in earnings and dividends of 4.5%/year into the foreseeable future. It is expected that the next dividend paid to stockholders will be $2.15/share. Currently the market of investors is demanding or requiring 8% on this investment. Show ALL work for full credit. a)(6 points) What is the current value of the stock? b)(2 points) What is the capital gains yield on this stock?
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Answer:
What is the current value of the stock
=2.15/(8%-4.5%)
=61.43
What is the capital gains yield on this stock
=required rate-dividend yield
=8%-(2.15/61.43)
=4.50%
