Suppose a company has a net income of $1,000,000 and a plowback ratio of 40%. There are 50,000 shares of stock outstanding. The company plans to increase dividends by 22% each year for the next 2 year and then apply a 2.25% growth rate to dividends each year indefinitely. The required return is 13%.
a) What will this year's dividend be?
b) What should the stock price be today?
c) What is this year's dividend yield? What is this year's capital gains yield?
d) What will the stock price be in 2 years?
e) What will the dividend yield and captial gains yield be in 2 years?