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12. Assume the BonBon Candy Company is a constant growth company whose last dividend was $3,00...

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Finance

12. Assume the BonBon Candy Company is a constant growth companywhose last dividend was $3,00 and whose dividend is expected togrow indefinitely at 6% rate. It normally discounts all cash flowat 10% .

a. what is the firm’s expected dividend stream over the nextthree years ?

b. what is the firm’s current stock price ?

c. what is the stoch’s expected value one year from now ?

d. what are the following :

      i. the expected dividend yieldduring first year ?

      ii. the capital gain yield duringthe first year ?

      iii. the total return during thefirst year ?

e. now assume that the stock is currently selling at $79.50 .what is the expected rate of return on the stock?

f. what would the stock price be if its dividends were expectedto have zero growth?

Answer & Explanation Solved by verified expert
3.7 Ratings (466 Votes)
As per the values given in the question the following is available Current dividend 3 per share Expected growth rate in dividend in perpetuity 6 pa Cost of Equity 10 a The company currently has a dividend of 3 per share and expects dividend to grow constantly at 6 per annum Therefore the stream of expected dividends during the next 3 years are as follows All figures rounded to two decimals Year 1 316 318 Year 2 31816 337 Year 3 3370816 357 b The company currently has a    See Answer
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