Calculation of expected dividend yield and capital gaina

Assignment Help Finance Basics

Reference no: EM13356776

Calculation of expected dividend yield and Capital Gain.

A financial analyst has been following Fast Start Inc. a new high-growth company. She estimates that the current risk-free rate is 6.25 percent, the market risk premium is 5 percent, and that Fast Start's beta is 1.75. The current earnings per share (EPS₀) are $2.50. The company has a 40 percent payout ratio. The analyst estimates that the company's dividend will grow at a rate of 25 percent this year, 20 percent next year, and 15 percent be following year. After three years, the dividend is expected to grow at a constant rate of 7 percent a year. The company is expected to maintain its current payout ratio. The analyst believes that the stock is fairly priced. What is the current price of the stock?

a) Find the expected dividend yield and capital gain yield once Fast Start Inc.'s period of supernormal growth ends.

b) At what interest to investors is the changing relationship between dividend yield and capital gain yield over time?

Reference no: EM13356776

Questions Cloud

Multiple choice questions on bond valuation and dps1nbspthe : multiple choice questions on bond valuation and dps.1.nbspthe u.s. treasury offers to sell you a bond for 613.81. no

Multiple choice questions on project evaluation dividend : multiple choice questions on project evaluation dividend policy and bond valuation.1.nbspharmon industries is

Calculation of dividend payout ratioflavortech inc expects : calculation of dividend payout ratio.flavortech inc. expects ebit of 2000000 for the current year. the firms capital

Multiple choice questions on dividend policy1nbspnbsp : multiple choice questions on dividend policy.1.nbspnbsp matrix corporation follows the residual dividend policy. in a

Calculation of expected dividend yield and capital gaina : calculation of expected dividend yield and capital gain.a financial analyst has been following fast start inc. a new

Multiple choice questions on return on dividends bond : multiple choice questions on return on dividends bond valuation and wacc.nbspnbspnbsp1. nbspnbspnbspnbsp an issue of

Preparation of balance sheetthe following are the balances : preparation of balance sheet.the following are the balances in the accounts for joan miller advertising agency as of

Inventory and cost of goods sold and journal : inventory and cost of goods sold and journal entries.assuming the perpetual inventory system is used complete journal

Preparation of bank reconciliation statement and passing : preparation of bank reconciliation statement and passing journal entries.randys spa supplies co. received its bank

User Account

All Pages