CH 9 FINANCE HELP 1. Constant growth stocks Aa Aa You are given the following in

Question

CH 9 FINANCE HELP

1. Constant growth stocks Aa Aa You are given the following information about three stocks: -Rust Petroleum is expected to pay a $1.20 dividend at the end of the year. The required return on Rust Petroleum's stock is 11% and its dividend is expected to grow at a constant rate of 7% per year -Schubert Fabric is expected to pay a $1.50 dividend at the end of the year. Schubert Fabric's dividend yield and capital gains yield both equal 6% Chapman Tech's current stock price is $15 per share, its required return is 13%, and its dividend yield is 8% Use the constant growth valuation formula to evaluate each stock's next expected dividend, current price, required return, expected dividend growth rate, and dividend yield. Assume the market is in equilibrium. In the table below, indicate which stock has the highest value for each of these metrics Which stock has the highestRust Petroleum Schubert Fabric Chapman Tech Expected dividend (Di) Current stock price (Po) Required return (rs) Expected dividend growth rate Dividend yield (DY) Capital gains yield

Explanation / Answer

Please use the above inputs

formula used, price = expected dividend/(required return - growth rate)

required return = dividend yield + capital gains yield

Rust Shubert Chapma Expected Div 1.2 1.5 1.2 current price 30 25 24 Required ret 11% 12% 13% Growth rate 7% 6% 5% DY 4% 6% 8% Capital Gains yield 7% 6% 5%

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