Bahamas Inc. is experiencing rapid growth. The company expects dividends to grow at 15 % per...

Bahamas Inc. is experiencing rapid growth. The company expects dividends to grow at 15 % per year for the next 4 years before leveling off at 6% into perpetuity. The required return on the company's stock is 11 percent. The dividend per share just paid was $1.25. 1) calculate the current market value of Bahamas Inc.'s stock. 2) calculate the expected market price of the share in one year. 3) calculate the expected dividend yield and capital gains yield expected at the end of the first year.

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Expert Solution

1. Current Market price of Bahamas Inc = $35.991

2. Market price after one year = $38.516

Dividend Yeild = (1.4375*100)/35.991 = 3.99%

Capital gain Yeild = (38.516-35.991)*100/35.991 = 7.015%

jeff jeffy answered 1 week ago

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