ch 7

4. Constant growth stocks

SCI just paid a dividend (D) of $2.40 per share, and its annual dividend is expected to grow at a constant rate (g) of 5.00% per year. If the required return (rss) on SCIs stock is 12.50%, then the intrinsic value of SCIs shares is per share.

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

The constant growth model can be used if a stocks expected constant growth rate is more than its required return.

The constant growth model can be used if a stocks expected constant growth rate is less than its required return.

Use the constant growth model to calculate the appropriate values to complete the following statements about Super Carpeting Inc.: (Note: Do not round your intermediate calculations.)

	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.