The common stock of NCP paid ?$1.31 in dividends last year. Dividends are expected to grow...

The common stock of NCP paid ?$1.31 in dividends last year. Dividends are expected to grow at an annual rate of 7.40 percent for an indefinite number of years.
a. If your required rate of return is 9.70 percent?, what is the value of the stock for? you?
b. Should you make the? investment?

Expert Solution

Investor Value = Dividend in Year 1 / (Required rate of Return -Growt Rate)

= (1.31 X 1.074)/(0.097-0.074)

= $ 61.17

Dividend for Year 1 = D0 X Growth Rate

Value of Stock is $ 61.17.

For Second Part, Expected Rate is required. If expected rate is higher than required rate of return, then Investment can be made to the stock. Here if the Expected return is more than 9.7 % then it is advisible to make investment in the stcok.

jeff jeffy answered 2 years ago

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