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Super Carpeting Inc. just paid a dividend (D0D0) of $3.36, and its dividend is expected to grow at a constant rate (g) of 4.90% per year.
If the required return (rsrs) on Supers stock is 12.25%, then the intrinsic, or theoretical market, value of Supers shares is $47.89 per share.
Which of the following statements is true about the constant growth model?
The constant growth model can be used if a stocks expected constant growth rate is less than its required return.
The constant growth model can be used if a stocks expected constant growth rate is more than its required return.
Use the constant growth model to calculate the appropriate values to complete the following statements about Super Carpeting Inc.:
| | If Supers stock is in equilibrium, the current expected dividend yield on the stock will be 7.35% per share. |
| | Supers expected stock price one year from today will be $50.20 per share. |
| | If Supers stock is in equilibrium, the current expected capital gains yield on Supers stock will be 4.82% per share. |
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