Respuesta :
Answer:
The correct option is (b), 13.88%
Explanation:
Given:
D0 = $3.12
Expected growth in dividend (D1) next year = 16% or 0.16
Dividend paid next year = 3.12 × (1+0.16)
= $3.6192
Now calculate horizon value. For that cost of equity needs to be computed which can be calculated using CAPM:
Cost of equity (Re) = Rf + β(Rm)
= 0.05 + 1.9(0.06)
= 0.164 or 16.4%
Horizon value = [tex]\frac{Dividend\ second\ year\ (D2)}{Re-g}[/tex]
Growth rate is 0.032 from second year onward
Horizon value = [tex]\frac{3.6192 (1.032)}{0.164-0.032}[/tex]
= $28.3
Now we have to calculate intrinsic value of stock:
Intrinsic value = [tex]\frac{D1}{1+Re} +\frac{Horizon\ value}{1+Re}[/tex]
= [tex]\frac{3.6192}{1.164} +\frac{28.3}{1.164}[/tex]
= $27.42
Expected Dividend = D1÷Intrinsic value
= 3.6192 ÷ 27.42
= 13.2
Expected dividend yield is 13.2 approximately which is close to 13.88 (difference due to rounding off of intermediary calculations)
The dividend yield next year for Portman's stock is 13.88%.
Dividend yield = dividend / price
Dividend next year = $3.12 x 1.16 = $3.6192
In order to determine the intrinsic price of the share, the two-stage dividend model would be used.
- Dividend in the first stage : $3.6192
- Dividend in the second stage = ( $3.6192 x 1.032) / (r - 0.032)
r = required rate of return
The value of r would be determined using CAPM = 5% + 1.90 x 6% = 16.40%
Dividend = 3.735 / 0.132 = 28.296
Determine the present value of the dividends = (3.6192 / 1.1640) + (28.296 / 1.1640) = 24.309 + 3.1093 = $27.418
Dividend yield = $3.6192 / $27.418 = 13.20%
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