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Could someone tell me if i did these two questions and calculations correctly?
Could someone tell me if i did these two questions and calculations correctly?
The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.95 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. If investors require a return of 10.5 percent on The Jackson-Timberlake Wardrobe Co. stock, what is the current price? What will the price be in three years? In 15 years?
Current Price = 1.95 (1 + 4%)/ (10.5%-4%) = 31.20
Price after 3 years = 1.95 (1 + 4%)^4/ (10.5%-4%) = 35.10
Price after 15 years = 1.95 (1 + 4%)^16/ (10.5%-4%) = 56.1
Suppose you know that a company's stock currently sells for $63 per share and the required return on the stock is 10.5 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it's the company's policy to always maintain a constant growth rate in its dividends, what is the current dividend per share?
Return On equity = 10.5% of 63 = 6.615
Dividend = 1/2 * 6.615 = $ 3.3075
Dividend Per Share = 3.3075