In excel detail format please! Wheat Inc. has just paid its annual dividends of
ID: 2743119 • Letter: I
Question
In excel detail 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
Statement Showing current value of one share of Wheat Inc. stocks today
expected price be in 11 years
P1 = D0(1+g) / K-g
Where P1 = Price of Share , D0 = Dividend in Previous Year, g = Griwth rate , K= Cost of Capital
= 4.7225 (1+0.05) / 0.14-0.05
= 4.9586 / 0.09
= 55.096 Price in 11 Year
In 11 years, the expected dividend yield and the expected capital gain yield
The Expected Dividend Yield = Dividend / Investment Price
= 4.7225 (1+0.05) / 29.3429 = 4.9586 / 29.3429 = 16.90%
The Expected Capital Gain = (Current Price - Investment Price) / Investment Price
= (55.096-29.3429) / 29.3429 = 25.7531 / 29.3429 = 87.77% Compare to Investment amount
Year PV @ 14% Dividend + G Amount 1 0.8772 2.05 1.7983 2 0.7695 2.05 1.5775 3 0.6750 2.05 1.3838 4 0.5921 2.3575 1.3959 5 0.5194 2.7111 1.4081 6 0.4556 3.1178 1.4205 7 0.3996 3.5855 1.4328 8 0.3506 4.0157 1.4079 9 0.3075 4.4976 1.3830 9 0.3075 =4.7225/(0.14-0.05)=52.472 16.1351 Total = Current Value of Share 29.3429