Shell is experiencing rapid growth. Earnings and dividends are expected to grow at a rate of 15% during the next 2 years, at 13% the following year, and at a constant rate of 6% during Year 4 and thereafter. Its last dividend was $1.15, and its required rate of return is 12%. b) Find the PV of the firm’s stock price at the end of Year 3. e) Calculate the value of the stock two years from today. f) Calculate the dividend and capital gains yields for Years 1, 2, and 3. Dividend Yield Year 1 = % Capital Gains Yield Year 1 = %

Shell is experiencing rapid growth. Earnings and dividends are expected to grow at a rate of 15% during the next 2 years, at 13% the following year, and at a constant rate of 6% during Year 4 and thereafter. Its last dividend was $1.15, and its required rate of return is 12%. b) Find the PV of the firm’s stock price at the end of Year 3. e) Calculate the value of the stock two years from today. f) Calculate the dividend and capital gains yields for Years 1, 2, and 3. Dividend Yield Year 1 = % Capital Gains Yield Year 1 = %

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter7: Corporate Valuation And Stock Valuation

Section: Chapter Questions

Problem 18MC

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Question

100%

b) Find the PV of the firm’s stock price at the end of Year 3.

e) Calculate the value of the stock two years from today.

f) Calculate the dividend and capital gains yields for Years 1, 2, and 3.

Dividend Yield Year 1 = %

Capital Gains Yield Year 1 = %

Dividend Yield Year 2 = %

Capital Gains Yield Year 2 = %

Dividend Yield Year 3 = %

Capital Gains Yield Year 3 = %

Definition Definition Increase in the value of a capital asset and the amount that is realized when the asset is sold off. A capital gain may be short-term or long-term depending on the tenure for which the asset is held.

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