A stock is selling for $40 per share currently. The next dividend will be $1 per share, and will grow at 12% per year forever.

A stock is selling for $40 per share currently. The next dividend will be $1 per share, and will grow at 12% per year forever. What is the rate of return required by investors?

Answer: 14.5%

Expert Solution

price of the stock = next dividend / (required return - growth rate)

here,

price of the stock =$40.

next dividend =$1

required return = to be found out , let it be x.

growth rate = 12%

=>0.12.

$40 = $1 / (x-0.12)

=>x-0.12 = $1/40

=>x=0.145

=>14.5%.

So required return = 14.5%.

jeff jeffy answered 2 years ago

ABC's common stock is currently selling for $40 per share. The dividend expected to be paid...

ABC's common stock is currently selling for $40 per share. The dividend expected to be paid at the end of the coming year is $5. Its dividend payments have been growing at a constant rate for the last 5 years. 5 years ago, the dividend was $3.2. It is expected that to sell, a new common stock issue must be underpriced by $1 per share in floatation costs and a new common stock must be underderpriced $1 per share. show...

A stock will pay an annual dividend next year of $5 per share. Dividends will grow...

A stock will pay an annual dividend next year of $5 per share. Dividends will grow at 30% for the following 2 years and then at 5% thereafter. What is V0 if K=0.1?

A stock sells for $40. The next dividend will be $4 per share. If the rate...

A stock sells for $40. The next dividend will be $4 per share. If the rate of return earned on reinvested funds is 15% and the company reinvests 60% of earnings in the firm, what is the expected rate of return on the stock?

A stock is currently selling on the NYSE for $40 per share. Based on the last...

A stock is currently selling on the NYSE for $40 per share. Based on the last twelve months, this represents a P/E ratio of 12.5 and a dividend yield of 4.8%. After an analysis of all the relevant variables, you estimate that the dividends per share will grow at an annual compouind rate of 8% and that GMA will maintain the same payout ratio each year as the previous year. GMA stock is expected to sell at a 15 P/E...

A stock expects to pay a dividend of $3.72 per share next year. The dividend is...

A stock expects to pay a dividend of $3.72 per share next year. The dividend is expected to grow at 25 percent per year for three years followed by a constant dividend growth rate of 4 percent per year in perpetuity. What is the expected stock price per share 5 years from today, if the required return is 12 percent?

The common stock of GVK Ltd. is currently selling for Rs. 70 per share. Dividend per...

The common stock of GVK Ltd. is currently selling for Rs. 70 per share. Dividend per share has grown from Rs. 2 to the current level of Rs. 6 over the past ten years and this dividend growth is expected to continue in future also. What is the required rate of return of the GVK Ltd. ?

A company currently pays a dividend of $3.6 per share (D0 = $3.6). It is estimated that the company's dividend will grow at a rate of 25% per year for the next 2 years

A company currently pays a dividend of $3.6 per share (D0 = $3.6). It is estimated that the company's dividend will grow at a rate of 25% per year for the next 2 years, and then at a constant rate of 8% thereafter. The company's stock has a beta of 1.1, the risk-free rate is 9.5%, and the market risk premium is 4.5%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer...

Valley Corp.'s stock is currently selling at $40 per share. There are 1 million shares outstanding....

Valley Corp.'s stock is currently selling at $40 per share. There are 1 million shares outstanding. The firm is planning to raise $2 million to finance a new project. What are the ex-rights stock price, the value of a right, and the appropriate subscription prices under the following scenarios? a. Two shares of outstanding stock are entitled to purchase one additional share of the new issue. (Do not round intermediate calculations and round your answers to 2 decimal places,...

The stock of Business Adventure currently sells for $40 per share. Its dividend payment and its...

The stock of Business Adventure currently sells for $40 per share. Its dividend payment and its year-end price depend on the state of the economy as follows: Dividend Stock Price Boom $2.00 $50 Normal Economy 1.00 43 Recession 0.50 34 Assume the three states of the economy is equally likely to happen. Expected Return of the stock this year is: 8.75% Standard Deviation of the stock return for this year is: 17.91% Risk premium of business adventures stock is 4.75%...

A stock currently trading at $38.60 paid a dividend of $2 per share for the year...

A stock currently trading at $38.60 paid a dividend of $2 per share for the year 2019. Analysts expect dividend growth rate of 20% for the next three years and then growth is expected to revert to 7% thereafter for an indefinite amount of time. The stock and the market (i.e. S&P 500) index have the same beta. A 10-year Treasury bond has a rate of 5%. The market return is 12% and the cost of capital (WACC) is 9.5%....

Question