In excel format please! Wheat Inc. has just paid its annual dividends of $2.05.
ID: 2742672 • Letter: I
Question
In excel format please!
Wheat Inc. has just paid its annual dividends of $2.05. The company is expected to pay the same $2.05 dividend for year 1, 2 and 3. After that dividends is then expected to grow at an annual rate of 15% for 4 years and at 12% for 2 years, then dividend is expected to grow at a constant rate of 5% indefinitely starting in year 10. Required rate of return on Wheat Inc. stock is 14%.
What is the current value of one share of Wheat Inc. stocks today?
What would the expected price be in 11 years?
In 11 years, what is the expected dividend yield and what is the expected capital gain yield?
Explanation / Answer
Wheat Inc.. Analysis Year Dividend Present value factor@14% Discounted cash flows 1 to 3 2.05 2.322 4.76 4 to 7 2.36 1.967 4.640 8 to 9 2.64 0.658 1.74 10 3.04 0.27 0.821 Price of the share D10(1+g)/Ke-g 3.04(1.12)/14-12% $170.24 0.27 45.96 Value of the share 57.921 today Value of share in 10 years 170.24 Dividend yield Annual dividend/ Current stock price Annual dividend 3.41/170.24 2% 3.04*1.12 3.4048 Current stock price 170.24 Capital gain yield P10-P0/P0 P10 170.24 P0 57.92 Yield 170.24-57.92/57.92 193.92%