A company has promised a dividend of $1.50. next year. The growth rate for the company...

A company has promised a dividend of $1.50. next year. The growth rate for the company is projected to be 1.5% annually. The beta of the company stock is 0.75. The market return is expected to be 6% and the risk free rate is 1.5% What should the fair price of the stock be?

Solutions

Expert Solution

Required return = 1.5% + 0.75 * (6% - 1.5%) = 4.875%

--> Answer

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

The last dividend paid by Coppard Inc. was $1.50. The dividend growth rate is expected to...

The last dividend paid by Coppard Inc. was $1.50. The dividend growth rate is expected to be constant at 35% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If the firm's required return (rs) is 11%, what is its current stock price?

Last year Artworks, Inc. paid a dividend of $1.50. You anticipate that the company’s growth rate...

Last year Artworks, Inc. paid a dividend of $1.50. You anticipate that the company’s growth rate is 4 percent and have a required rate of return of 9 percent for this type of equity investment. What is the maximum price you would be willing to pay for the stock? Round your answer to the nearest cent.

1.) XYZ Corporation's next dividend is expected to be $3 per share. Dividend growth rate has...

1.) XYZ Corporation's next dividend is expected to be $3 per share. Dividend growth rate has been at 2% and expected to be so into the future. If investor's return is 10%, calculate the stock price next year. A) 37.50 B) 38.25 C) 38.50 D) 38.75 E) None of the above Which of the following typically applies to preferred stock but not to common stock? A) Par Value B) Dividend yield C) Cumulative dividends D) It is legally considered equity...

APEX Company paid a €1.50 dividend per share this year. Over the next two years, dividends...

APEX Company paid a €1.50 dividend per share this year. Over the next two years, dividends and earnings are expected to grow at a rate of 12%. After two years, the company is expected to grow at a constant rate of 5%. Additional information: Risk-free rate of return 4.5% Equity risk premium 5.0% Beta coefficient 0.9 1) Estimate the required rate of return on equity using the CAPM. 2) Estimate the expected future dividend at the end of year 1....

A rapidly growing company just paid a dividend of $1.50 a share. For the next three...

A rapidly growing company just paid a dividend of $1.50 a share. For the next three years, the earnings growth rate is projected to be 15% each year, and then 4% each year thereafter. If the required rate of return is 9%, what is the value of the stock? A)$35.15 B)$38.63 C)$43.88 D)$41.65

The Optical Scam Company has forecast a sales growth rate of 25 percent for next year....

The Optical Scam Company has forecast a sales growth rate of 25 percent for next year. The current financial statements are shown here: Income Statement Sales $ 32,300,000 Costs 26,971,600 Taxable income $ 5,328,400 Taxes 1,864,940 Net income $ 3,463,460 Dividends $ 1,385,384 Addition to retained earnings 2,078,076 Balance Sheet Assets Liabilities and Equity Current assets $ 7,390,000 Short-term debt $ 6,460,000 Long-term debt 2,584,000 Fixed assets 17,804,000 Common stock $ 4,306,000 Accumulated retained earnings...

The Optical Scam Company has forecast an 20 percent sales growth rate for next year. The...

The Optical Scam Company has forecast an 20 percent sales growth rate for next year. The current financial statements are shown below. Current assets, fixed assets, and short-term debt are proportional to sales. INCOME STATEMENT Sales $ 35,000,000 Costs 27,100,000 Taxable income $ 7,900,000 Taxes 2,765,000 Net income $ 5,135,000 Dividends $ 1,027,000 Additions to retained earnings $ 4,108,000 BALANCE SHEET Assets Liabilities and Equity Current assets $ 9,800,000 Short-term debt $ 5,600,000 Long-term debt 6,100,000 Fixed assets...

The Optical Scam Company has forecast a sales growth rate of 25 percent for next year....

The Optical Scam Company has forecast a sales growth rate of 25 percent for next year. Current assets, fixed assets, and short-term debt are proportional to sales. The current financial statements are shown here: INCOME STATEMENT Sales $ 31,000,000 Costs 26,367,600 Taxable income $ 4,632,400 Taxes 1,621,340 Net income $ 3,011,060 Dividends $ 1,204,424 Addition to retained earnings 1,806,636 BALANCE SHEET Assets Liabilities and Equity Current assets $ 7,260,000 Short-term debt $ 8,060,000 Long-term debt 1,588,750 Fixed assets...

The Optical Scam Company has forecast a sales growth rate of 20 percent for next year....

The Optical Scam Company has forecast a sales growth rate of 20 percent for next year. Current assets, fixed assets, and short-term debt are proportional to sales. The current financial statements are shown here: INCOME STATEMENT Sales $ 32,400,000 Costs 28,531,000 Taxable income $ 3,869,000 Taxes 1,354,150 Net income $ 2,514,850 Dividends $ 1,005,940 Addition to retained earnings 1,508,910 BALANCE SHEET Assets Liabilities and Equity Current assets $ 7,400,000 Short-term debt $ 7,128,000 Long-term debt 3,969,000 Fixed assets...

The Optical Scam Company has forecast a sales growth rate of 20 percent for next year....

The Optical Scam Company has forecast a sales growth rate of 20 percent for next year. The current financial statements are shown here: Income Statement Sales $ 31,500,000 Costs 26,641,500 Taxable income $ 4,858,500 Taxes 1,700,475 Net income $ 3,158,025 Dividends $ 1,263,210 Addition to retained earnings 1,894,815 Balance Sheet Assets Liabilities and Equity Current assets $ 7,310,000 Short-term debt $ 5,985,000 Long-term debt 4,130,000 Fixed assets 19,780,000 Common stock $ 4,080,000 Accumulated retained earnings...

Subjects