The Fly-By-Night Corp. paid a dividend of $2.85 last year and the dividend is expected to...

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The Fly-By-Night Corp. paid a dividend of $2.85 last year andthe dividend is expected to grow at 5% per year for the foreseeablefuture. The company’s stock is currently selling for $38 per share.What are the expected dividend yield, capital gains yield, andtotal expected return for Fly-By-Night.

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3.6 Ratings (303 Votes)

Dividend last year=   2.85
Growth rate=   5% or   0.05
Dividend next year (D1)= D0*(1+g)
2.85*(1+0.05)=   2.9925
Stock price =   38

Required Return (ke) formula = D1/P0 + Growth rate
(2.9925/38 ) + 0.05
0.12875

P1 or price at end = P0*(1+Growth)
38*(1+0.05)=   39.9
Dividend yield = D1/P0
2.9925/38 =   0.07875   or 7.875%

Capital gain yield = (P1-P0)/P0
(39.9 - 38)/38=   0.05   or 5%

Total Expected Return = Dividend yield + Capital gain yield
0.07875 + 0.05 =   0.12875   or 12.875%

So Dividend yield is 7.875%, capital gain yield is 5% and Total yield is 12.875%

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The Fly-By-Night Corp. paid a dividend of $2.85 last year andthe dividend is expected to grow at 5% per year for the foreseeablefuture. The company’s stock is currently selling for $38 per share.What are the expected dividend yield, capital gains yield, andtotal expected return for Fly-By-Night.

The Fly-By-Night Corp. paid a dividend of $2.85 last year and the dividend is expected to...

Free

70.2K

Verified Solution

Question

Finance

The Fly-By-Night Corp. paid a dividend of $2.85 last year andthe dividend is expected to grow at 5% per year for the foreseeablefuture. The company’s stock is currently selling for $38 per share.What are the expected dividend yield, capital gains yield, andtotal expected return for Fly-By-Night.

Answer & Explanation Solved by verified expert

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