5. Constant growth stocks Super Carpeting Inc. (SCI) just paid a dividend (D) of $2.40 per share, and its annual dividend is expected to grow at a constant rate (9) of 5.00% per year. If the required return (r.) on SCI's stock is 12.50%, then the intrinsic value of SCI's shares is $33.60 per share. Which of the following statements is true about the constant growth model? O The constant growth model can be used if a stock's expected constant growth rate is less than its required return. The constant growth model can be used if a stock's expected constant growth rate is more than its required return. Use the constant growth model to calculate the appropriate values to complete the following statements about Super Carpeting Inc.: If SCI's stock is in is in equilibrium, the current expected dividend yield on the stock will be • SCI's expected stock price one year from today will be $33.60 per share. • If SCI's stock is in equilibrium, the current expected capital gains yield on SCI's stock will be per share. per share.
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
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