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ch. 8 part 3.docx

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ECON 4400

To find the net income we need to find the EPS The stock quote tells us the PE ratio for the stock is 1021 Since we know the stock price as well we can use the PE ratio to solve for EPS as followsPE1021Stock priceEPSEPSEPS23481021230We know that EPS is just the total net income divided by the number of shares outstanding so EPSNIShares2299NI232455NI2302324555346465019LO1 We can use the twostage dividend growth model for this problem which isTTPD1gRg11g1R 1g1RD1gRg00111102288P125128132811281131281131251061306 0P6955020LO1 We can use the twostage dividend growth model for this problem which isTTPD1gRg11g1R 1g1RD1gRg0011110221111P174125122511251121251121741061206 0P113260Challenge21LO1 We are asked to find the dividend yield and capital gains yield for each of the stocks All of the stocks have a 15 percent required return which is the sum of the dividend yield and the capital gains yield To find the components of the total return we need to find the stock price for each stock Using this stock price and the dividend we can calculate the dividend yield The capital gains yield for the stock will be the total return required return minus the dividend yieldWPD1gRg45011019105500Dividend yieldDP4501105509 or 9 10Capital gains yield190910 or 10XPD1gRg450190236800Dividend yieldDP450236819 or 1910Capital gains yield19190YPD1gRg4501051905178100Dividend yieldDP450095178124 or 2410Capital gains yield192405 or 522ZPD1gRgD1gRg4501201121912103681g22012 222P450 120119450 120 1191036811982320
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