A company does not plan to pay dividends until 3 years from now. The first dividend will be $5 (i.e. D3=$5). After that, dividends will increase by a fixed rate of 3.5% per year indefinitely. The required return on the stock is 12%.

a.What are the stock price, dividend yield, and capital gains yield in 2 years?
b. What are the stock price, dividend yield, and capital gains yield in 5 years?
c.What are the stock price, dividend yield, and capital gains yield this year?
d. Explain what will happen to the stock price after the dividends have begun to be paid.

Answer rating: 100% (QA)

Stock Price and Growth Analysis Assumptions Well assume the year just startedso this year means year 0 Well round final results to two decimal places ... View the full answer