Hamilton Landscaping’s dividend growth rate is expected to be 30% in the next year, drop to 15% from Year 1 to Year 2, and drop to a constant 5% for Year 2 and all subsequent years. Hamilton has just paid a dividend of $2.50 and its stock has a required return of 11%.
1st assignment is:
Hamilton Landscaping’s dividend growth rate is expected to be 30% in the next year, drop to 15% from Year 1 to Year 2, and drop to a constant 5% for Year 2 and all subsequent years. Hamilton has just paid a dividend of $2.50 and its stock has a required return of 11%.
a. What is Hamilton’s estimated stock price today?
D0
$2.50
rs
11.0%
g0,1
30%
Short-run g; for Year 1 only.
g1,2
15%
Short-run g; for Year 2 only.
gL
5%
Long-run g; for Year 3 and all following years.
g
30%
15%
5%
5%
Year
0
1
2
3
Dividend
PV of dividends and PV of horizon value
= D2 (1+g) = D3
= Horizon value = P2 =
= rs – gL
= P0
a. What is Hamilton’s estimated stock price for Year 1?
P1
=
P2
+
D2
(1 + rs)
P1
=
+
P1
=
b. If you bought the stock at Year 0, what your expected dividend yield and capital gains for the upcoming year?
1. Find the expected dividend yield.
Dividend yield =
D1
/
P0
Dividend yield =
/
Dividend yield =
2. Find the expected capital gains yield.
Use the estimated price for Year 1, P1, to find the expected gain.
Cap. Gain yield=
(P1 – P0)
/
P0
Cap. Gain yield=
/
Cap. Gain yield=
Alternatively, the capital gains yield can be calculated by simply subtracting the dividend yield from the total expected return.
Cap. Gain yield=
Expected return
–
Dividend yield
Cap. Gain yield=
–
Cap. Gain yield=
c. What your expected dividend yield and capital gains for the second year (from Year 1 to Year 2)? Why aren’t these the same as for the first year?
1. Find the expected dividend yield.
Dividend yield =
D2
/
P1
Dividend yield =
/
Dividend yield =
2. Find the expected capital gains yield.
Use the estimated price for Year 2, P2, to find the expected gain.
Cap. Gain yield=
(P2 – P1)
/
P1
Cap. Gain yield=
/
Cap. Gain yield=
Alternatively, the capital gains yield can be calculated by simply subtracting the dividend yield from the total expected return.
Cap. Gain yield=
Expected return
–
Dividend yield
Cap. Gain yield=
–
Cap. Gain yield=
Add submission
Requirements:
Collepals.com Plagiarism Free Papers
Are you looking for custom essay writing service or even dissertation writing services? Just request for our write my paper service, and we'll match you with the best essay writer in your subject! With an exceptional team of professional academic experts in a wide range of subjects, we can guarantee you an unrivaled quality of custom-written papers.
Get ZERO PLAGIARISM, HUMAN WRITTEN ESSAYS
Why Hire Collepals.com writers to do your paper?
Quality- We are experienced and have access to ample research materials.
We write plagiarism Free Content
Confidential- We never share or sell your personal information to third parties.
Support-Chat with us today! We are always waiting to answer all your questions.
