Consider four different stocks, all of which have a required return of 20 percent and a most recent dividend of $4.40 per share. Stocks W, X, and Y are expected to maintain constant growth rates in dividends for the foreseeable future of 10 percent, 0 percent, and -5 percent per year, respectively. Stock Z is a growth stock that will increase its dividend by 20 percent for the next two years and then maintain a constant 11 percent growth rate thereafter. What is the dividend yield and capital gains yield for each of these four stocks? (Leave no cells blank - be certain to enter "0" wherever required. A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 1 decimal place, e.g., 32.1.) Stock W Stock X Stock Y Stock Z Dividend yield % % % % Stock W Stock X Stock Y Stock Z Capital gains yield % % % %
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.
Please answer fast I give you upvote.
![Problem 8-32 Capital Gains versus Income [LO1]
Consider four different stocks, all of which have a required return of 20 percent and a
most recent dividend of $4.40 per share. Stocks W, X, and Y are expected to maintain
constant growth rates in dividends for the foreseeable future of 10 percent, 0 percent,
and -5 percent per year, respectively. Stock Z is a growth stock that will increase its
dividend by 20 percent for the next two years and then maintain a constant 11 percent
growth rate thereafter. What is the dividend yield and capital gains yield for each of
these four stocks? (Leave no cells blank - be certain to enter "0" wherever required. A
negative answer should be indicated by a minus sign. Do not round intermediate
calculations and enter your answers as a percent rounded to 1 decimal place, e.g.,
32.1.)
Stock W
Stock X
Stock Y
Stock Z
Dividend yield
%
%
%
%
Stock W
Stock X
Stock Y
Stock Z
Capital gains yield
%
%
%
%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F55bf590c-79a1-441f-9a7b-2a9ffb00fcc5%2F468c3bfb-30d0-49a8-8a39-514fc25bcc13%2Fqhu6e5i_processed.jpeg&w=3840&q=75)
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 14 images
