Question

In: Finance

Hubbard Industries just paid a common dividend, D0, of $1.90.

Quantitative Problem 1: Hubbard Industries just paid a common dividend, D0, of $1.90. It expects to grow at a constant rate of 4% per year. If investors require a 8% return on equity, what is the current price of Hubbard's common stock? Do not round intermediate calculations. Round your answer to the nearest cent.
$   per share

Zero Growth Stocks:

The constant growth model is sufficiently general to handle the case of a zero growth stock, where the dividend is expected to remain constant over time. In this situation, the equation is:

Note that this is the same equation developed in Chapter 5 to value a perpetuity, and it is the same equation used to value a perpetual preferred stock that entitles its owners to regular, fixed dividend payments in perpetuity. The valuation equation is simply the current dividend divided by the required rate of return.

Solutions

Expert Solution

The price is computed as follows:

= [ Dividend just paid x (1 + growth rate) ] / (return on equity - growth rate)

= [ $ 1.90 x 1.04 ] / (0.08 - 0.04)

= $ 1.976 / 0.04

= $ 49.40


Related Solutions

15 Quantitative Problem 1: Hubbard Industries just paid a common dividend, D0, of $1.90. It expects...
15 Quantitative Problem 1: Hubbard Industries just paid a common dividend, D0, of $1.90. It expects to grow at a constant rate of 2% per year. If investors require a 8% return on equity, what is the current price of Hubbard's common stock? Do not round intermediate calculations. Round your answer to the nearest cent. $   per share Zero Growth Stocks: The constant growth model is sufficiently general to handle the case of a zero growth stock, where the dividend is...
Quantitative Problem 1: Hubbard Industries just paid a common dividend, D0, of $1.20. It expects to...
Quantitative Problem 1: Hubbard Industries just paid a common dividend, D0, of $1.20. It expects to grow at a constant rate of 4% per year. If investors require a 9% return on equity, what is the current price of Hubbard's common stock? Do not round intermediate calculations. Round your answer to the nearest cent. $ ________ per share Zero Growth Stocks: The constant growth model is sufficiently general to handle the case of a zero growth stock, where the dividend...
Quantitative Problem 1: Hubbard Industries just paid a common dividend, D0, of $1.80. It expects to...
Quantitative Problem 1: Hubbard Industries just paid a common dividend, D0, of $1.80. It expects to grow at a constant rate of 2% per year. If investors require a 10% return on equity, what is the current price of Hubbard's common stock? Round your answer to the nearest cent. Do not round intermediate calculations. $_____ per share Zero Growth Stocks: The constant growth model is sufficiently general to handle the case of a zero growth stock, where the dividend is...
Quantitative Problem 1: Hubbard Industries just paid a common dividend, D0, of $1.30. It expects to...
Quantitative Problem 1: Hubbard Industries just paid a common dividend, D0, of $1.30. It expects to grow at a constant rate of 4% per year. If investors require a 12% return on equity, what is the current price of Hubbard's common stock? Do not round intermediate calculations. Round your answer to the nearest cent. $ per share Zero Growth Stocks: The constant growth model is sufficiently general to handle the case of a zero growth stock, where the dividend is...
Hall & Marks just paid a $1.90 per share dividend yesterday.(that is, D0 = $1.90). The...
Hall & Marks just paid a $1.90 per share dividend yesterday.(that is, D0 = $1.90). The dividend is expected to grow at a constant rate of 3% a year. The required rate of return on the stock, rs, is 14%. What is the stock's current value per share?
Nachman Industries just paid a dividend of D0 = $2.50. Analysts expect the company's dividend to...
Nachman Industries just paid a dividend of D0 = $2.50. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What is the best estimate of the stock’s current market value? Do not round intermediate calculations. Please show work
Nachman Industries just paid a dividend of D0 = $2.50. Analysts expect the company's dividend to...
Nachman Industries just paid a dividend of D0 = $2.50. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What is the best estimate of the stock’s current market value? Do not round intermediate calculations.
Schnusenberg Corporation just paid a dividend of D0 = $0.75 per share, and that dividend is...
Schnusenberg Corporation just paid a dividend of D0 = $0.75 per share, and that dividend is expected to grow at a constant rate of 7% per year in the future. The company's beta is 1.25, the required return on the market is 10.50%, and the risk-free rate is 4.50%. What is the company's current stock price?
National Advertising just paid a dividend of D0 = $0.75 per share, and that dividend is...
National Advertising just paid a dividend of D0 = $0.75 per share, and that dividend is expected to grow at a constant rate of 6.50% per year in the future. The company's beta is 1.35, the required return on the market is 10.50%, and the risk-free rate is 4.50%. What is the company's current stock price?
1. A stock just paid a dividend of D0 = $0.66. Dividend is expected to grow...
1. A stock just paid a dividend of D0 = $0.66. Dividend is expected to grow at a constant rate of 3.2%. The required rate of return is 15.7%. What is the current stock price? 2. XYZ stock is currently selling for $40.35 per share. The company just paid its first annual dividend of $4.08 a share. The firm plans to increase the dividend by 7 percent per year indefinitely. What is the expected return on XYZ stock?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT