Mitts Cosmetics Co.s stock price is $58.88, and it recentlypaid a $2 d

QUESTION

Mitts Cosmetics Co.s stock price is $58.88, and it recentlypaid a $2 dividend. This dividend is expected to grow by 25 percentfor the next 3 years, and then grow forever at a constant rate, g,and rs=12%(where s is at the bottom of r I cant put s at thebottom so dont get confused:)).At what
Mitts Cosmetics Companys Stock Price(P 0 ) = $58.88] Dividend paid recently (D 0 )= $2 Dividend growth rate(g) = 25% for the next 3 years Required return (R) = 12% D 0 = $2 D 3 = $2 (1 0.25) 3 D 3 = $2 * 1.25 3 D 3 = $2 * 1.953125 D 3 = $3.90 Calculating Expected Dividend GrowthRate: Note: Dividend Growth Rate is also called as Capital gainsyield. Capital gains yield = Rate of Return Dividend yield Dividend yield = Expected cash dividend per share /

rrentStocks price per share Dividend yield = D 3 / P 0 Dividend yield = $3.90 / $58.88 Dividend yield = 0.06623 (or) 6.62% Capital gains yield = Rate of Return Dividend yield = 12% 6.62% Capital gains yield = 5.38% Constant Dividend Growth Rate after 3 years (Capital gain) =5.38% Hope it may help you

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