Consider four different stocks, all of which have a required return of 18.25 percent and a most recent dividend of $3.10 per share. Stocks W, X, and Y are expected to maintain constant growth rates in dividends for the foreseeable future of 11 percent, 0 percent, and -5.5 percent per year, respectively. Stock Z is a growth stock that will increase its dividend by 20.25 percent for the next two years and then maintain a constant 13 percent growth rate, thereafter. a. What is the dividend yield for each of these four stocks? Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the expected capital gains yield for each of these four stocks? Note: A negative answer should be indicated by a minus sign. Leave no cells blank - be certain to enter "O" wherever required. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. a. Stock W dividend yield Stock X dividend yield % % Stock Y dividend yield % Stock Z dividend yield % b. Stock W capital gains yield % Stock X capital gains yield % Stock Y capital gains yield % Stock Z capital gains yield %

Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter7: Corporate Valuation And Stock Valuation
Section: Chapter Questions
Problem 18MC
Question

Baghiben 

Consider four different stocks, all of which have a required return of 18.25 percent and a most recent dividend of $3.10 per share.
Stocks W, X, and Y are expected to maintain constant growth rates in dividends for the foreseeable future of 11 percent, 0 percent, and
-5.5 percent per year, respectively. Stock Z is a growth stock that will increase its dividend by 20.25 percent for the next two years
and then maintain a constant 13 percent growth rate, thereafter.
a. What is the dividend yield for each of these four stocks?
Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.
b. What is the expected capital gains yield for each of these four stocks?
Note: A negative answer should be indicated by a minus sign. Leave no cells blank - be certain to enter "O" wherever required.
Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.
a. Stock W dividend yield
Stock X dividend yield
%
%
Stock Y dividend yield
%
Stock Z dividend yield
%
b. Stock W capital gains yield
%
Stock X capital gains yield
%
Stock Y capital gains yield
%
Stock Z capital gains yield
%
Transcribed Image Text:Consider four different stocks, all of which have a required return of 18.25 percent and a most recent dividend of $3.10 per share. Stocks W, X, and Y are expected to maintain constant growth rates in dividends for the foreseeable future of 11 percent, 0 percent, and -5.5 percent per year, respectively. Stock Z is a growth stock that will increase its dividend by 20.25 percent for the next two years and then maintain a constant 13 percent growth rate, thereafter. a. What is the dividend yield for each of these four stocks? Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the expected capital gains yield for each of these four stocks? Note: A negative answer should be indicated by a minus sign. Leave no cells blank - be certain to enter "O" wherever required. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. a. Stock W dividend yield Stock X dividend yield % % Stock Y dividend yield % Stock Z dividend yield % b. Stock W capital gains yield % Stock X capital gains yield % Stock Y capital gains yield % Stock Z capital gains yield %
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