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course hero 5 - = $4.064 0.06 = $67.73 2.Stock Values The...

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Business, Finance - Other Stock Valuation , Capital Budgeting, Project Analysis and Evaluation 1.Stock Values: The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.60 per share on its stock. The dividends are expected to grow at a constant rate of 6 percent per year indefinitely. If investors require a 12 percent return on The Jackson-Timberlake Wardrobe Co. stock, what is the current price? What will the price be in three years? In 15 years? Answer: Current Price Po = $1.60 (1+0.06) / 0.12 - 0.06 = $28.27 In three years = $1.60 (1+0.06)^4 / 0.12- 0.06 = $2.019 / 0.06 = $33.66 In 15 years = $1.60 (1+0.06)^16 / 0.12- 0.06
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Unformatted text preview: = $4.064 / 0.06 = $67.73 2.Stock Values: The next dividend payment by Top Knot, Inc., will be $2.50 per share. The dividends are anticipated to maintain a 5 percent growth rate forever. If the stock currently sells for $48.00 per share, what is the required return? What is the dividend yield? What is the expected capital gains yield? Po = D1 / K-G $48 = $2.50 / k - 0.05 k = 10.2% (Required rate of return) Dividend yield = D1/ Po * 100 = $2.50 / $48 = 5.21% P1 = D2 / K-G = 2.625 / 0.102 - 0.05 = $ 50.48 Capital gain yield expected = P1 - P0 / P0 * 100 = $50.48 - $48 / $48 = 5.17%...
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