8. Constant growth stocks

Super Carpeting Inc. (SCI) just paid a dividend (D) of $3.12 per share, and its annual dividend is expected to grow at a constant rate (g) of 6.50% per year. If the required return (rss) on SCIs stock is 16.25%, then the intrinsic value of SCIs shares is per share.

Which of the following statements is true about the constant growth model?

When using a constant growth model to analyze a stock, if an increase in the required rate of return occurs while the growth rate remains the same, this will lead to an increased value of the stock.

When using a constant growth model to analyze a stock, if an increase in the required rate of return occurs while the growth rate remains the same, this will lead to a decreased value of the stock.

Use the constant growth model to calculate the appropriate values to complete the following statements about Super Carpeting Inc.:

	If SCIs stock is in equilibrium, the current expected dividend yield on the stock will be per share.
	SCIs expected stock price one year from today will be per share.
	If SCIs stock is in equilibrium, the current expected capital gains yield on SCIs stock will be per share.