Answer:
Expected Dividend Yield is 10.4%
Explanation:
As we know that the Expected Dividend Yield for Portman’s Stock can be calculated using the following formula:
Expected Dividend Yield = [D0 x (1 + g) / Intrinsic Value (Step1)] * 100
Here
Dividend just paid is $2.16 per share
The growth rate for the Portman's stock is 16% for the first year
Ke is 13.6%
Intrinsic Value = $24.09 (See Step 1)
By putting the above values in the above equation, we have:
Expected Dividend Yield = [$2.16 x (1 + 0.16) / $24.09] x 100
= 10.4%
Step 1. Intrinsic Value can be calculated using the following formula:
Intrinsic Value = D1 / (1 + r)^1 + Horizon Value (Step 2) / (1 + r)^1
Here
Growth (g) will be 3.2% for the year 2 because D2 = D1 * (1 + g)
Horizon value = D1 * (1 + g) / (Ke – g) = $2.5056 * (1 + 3.2%) / (13.6% – 3.2%)
= $2.5858 / 0.0752 = $24.86 per share
So by putting the above values in the step 1, we have:
= $2.5056 / (1 + 0.136)1 + $24.86/(1 + 0.136)1
= $24.09 per share
