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The next dividend payment by Savitz, Inc., will be $1.84 per share. The dividends are anticipated to maintain a growth rate of 5 percent forever. The stock currently sells for $36 per share. a. What is the dividend yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the expected capital gains yield? (Enter your answer as a percent.)

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TomShelby

Answer:

Dividend Yield 5.11%

Cost of Capital or expected return 10.11%

Explanation:

1.84/36 = 0.0511111 = 5.11%

we use the gordon model to calculate the return.

[tex]\frac{divends}{return-growth} = Intrinsic \: Value[/tex]

[tex]\frac{1.84}{return-0.05} = 36[/tex]

1.84/36   +   0.05 =   0.1011111 = 10.1111%

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