Question
In: Finance
7. Hardware Co. paid an annual dividend of $0.95 today. The company announced that future dividends...
7. Hardware Co. paid an annual dividend of $0.95 today. The company announced that future dividends will grow at 2.6% annually. If you require a 13% rate of return, how much are you willing to pay to purchase one share of stock today?
A. $9.13 B. $9.37 C. $9.67 D. $9.72 E. $9.88
8. WinForever Corporation has a dividend-paying stock with a total return for the year of -6.5%. Which of the following must be true?
A. The dividend must be constant B. The stock has a negative
capital gains yield C. The dividend yield must be zero D. The
required rate of return for this stock increased over the year E.
The firm is experiencing supernormal growth
Solutions
Expert Solution
7.
Compute the next expected dividend, using the equation as shown below:
Next dividend = Current dividend*(1 + Growth rate)
= $0.95*(1 + 0.026)
= $0.9747
Hence, the next expected dividend is $0.9747.
Compute the current stock price, using the equation as shown below:
Current price = Next dividend/ (Required rate – Growth rate)
= $0.9747/ (13% - 2.6%)
= $0.9747/ 10.4%
= $9.37211538461
Hence, the current stock price is $9.37.
jeff jeffy answered 1 year agoRelated Solutions
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