The club auto parts company has recently organized. It is expected to experience no growth for the next 2 years as it identifies its market and acquires its inventory. However, club will grow at an annual rate of 5 percent in the third year and beginning with the fourth year, should attain a 10 percent growth rate which will sustain thereafter. The first dividend (D1) to be paid at the end of the 1st year is expected to be $0.50 per share. Investors require a 15 percent rate of return on club stock.
Q: What dividend yield and capital gains yield should an investor in the Club expect for the first year?© BrainMass Inc. brainmass.com March 4, 2021, 10:57 pm ad1c9bdddf
1st two years, g = 0
Year 5, g= 5%
Year 6 >, g = 10%
D1 = $ 0.50
k = 15%
Dividend Yield = Annual Dividends Per Share
Price Per Share
The constant growth model:(we need this to calculate the ...
The solution determines the dividend yield and the capital gains yield.