Hi,:) can you please solve this i need help. Thank you! Chapter 9 problem 5 Supe
ID: 2738697 • Letter: H
Question
Hi,:) can you please solve this i need help. Thank you!
Chapter 9 problem 5
Super Carpeting Inc. just paid a dividend (Do) of $3.60, and its dividend is expected to grow at a constant rate (g) of 7.50% per year. If the required return (rs) on Super's stock is 18.75%, what is the intrinsic value of Super's shares? O $38.00 per share $34.40 per share O O $19.20 per share o $48.00 per share Which of the following statements is true about the constant growth model? O en using a constant growth model to analyze a stock, if an increase in the growth rate occurs while the required return remains the same, this will lead to an increased value of the stock. O When using a constant growth model to analyze a stock, if an increase in the growth rate occurs while the required return remains the same, this will lead to a decreased value of the stock.Explanation / Answer
Step-1:
Calculation of intrinsic value
= Dividend per share / Stock rate – Growth rate
= 34.40 per share.
Step-2:
It leads to decrease the value of the stock.
Step-3:
The current expected dividend yield on stock will be 3.60 per share
Expected stock price from today 18.75 per share
The current expected capital gain yield on stock will be 7.50 per year