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Mike works for a prominent technology company. His company just paid a $1.50 dividend per share....

Mike works for a prominent technology company. His company just paid a $1.50 dividend per share. The required return for his company’s stock is 12%.

(Input all answers as positive values, no commas, with no symbols ex. no $ or %. Input all % answers as whole numbers without symbols ex. 10.03 for .1003. Input all final answers two decimal places out.)

Mike’s company has decided to increase the company’s dividend by 6% forever, on an annual basis starting with the next dividend. If this is the case, what will the value of the dividend be in year 8? (Hint: D0=$1.50; g=6%)

Given the growth information and the required rate of return of 12%, what is the price of the stock today? (Hint: Constant Dividend Growth Stock; D0=$1.50)

Given the information and the required rate of return of 12%, what is the stock price at year 13? (Hint: D0=$1.50; g=6%)

Solutions

Expert Solution

1.
=1.5*(1+6%)^8=2.39077211179626

2.
=1.5*(1+6%)/(12%-6%)=26.50

3.
=1.5*(1+6%)^14/(12%-6%)=56.5225988938607

jeff jeffy answered 2 years ago
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