Question

In: Finance

A company just paid a $2.00 dividend, expected to grow at 2% indefinitely. If the firm's...

A company just paid a $2.00 dividend, expected to grow at 2% indefinitely. If the firm's stock can be sold for $19 per share, what is the cost of common equity.

a)11.98%

b)11.69%

c)12.01%

d)12.74%

e)none of the above

Solutions

Expert Solution

Ans d)12.74%

P0 = Price of Share
D1 = Current Dividend
Ke = Cost of Equity
g = growth rate
P0 = D1 / (Ke - g)
19 = 2.04 / (Ke - 2%)
Ke - 2% = 2.04 / 19
Ke - 2% = 10.74%
Ke = 10.74% + 2%
Ke = 12.74%
D1 = D0 ( 1 + g)
2.00 * (1 + 2%)
$2.0400

Related Solutions

12. XYZ, Inc. just paid $2.00 dividend. Dividends are expected to grow at a 20% rate...
12. XYZ, Inc. just paid $2.00 dividend. Dividends are expected to grow at a 20% rate for the next five years. After that, the company has stated that the annual dividend will be $2.50 per share indefinitely. The required rate of return is 10%. (a) What is this stock worth to you per share today? (b) What is the expected stock price next year? (c) What is the expected stock price 20 years from today? Could you explain the question...
Suppose a company just paid dividend of $2.19. The dividend is expected to grow at 5.99%...
Suppose a company just paid dividend of $2.19. The dividend is expected to grow at 5.99% each year. If the stock is currently selling for $102.09, what is the required rate of return on the stock?
a. A stock just paid a dividend of $1.04. The dividend is expected to grow at...
a. A stock just paid a dividend of $1.04. The dividend is expected to grow at 26.98% for three years and then grow at 4.97% thereafter. The required return on the stock is 11.63%. What is the value of the stock? b. A stock just paid a dividend of $1.17. The dividend is expected to grow at 22.53% for five years and then grow at 4.80% thereafter. The required return on the stock is 14.27%. What is the value of...
A stock just paid a dividend of $2.40. The dividend is expected to grow at a...
A stock just paid a dividend of $2.40. The dividend is expected to grow at a rate of 5% forever. If the stock is currently selling for $25.00, what return do investors require to hold this stock? 18%, 17%, 16%, 15% A project is projected to cost $2,000,000 to undertake. It will generate positive cash inflows as follows: Year 1 - $400,000; Year 2 – 500,000; Year 3 - $650,000; Year 4 – 700,000; Year 5 – 800,000. What is...
A stock just paid a dividend of $2.27. The dividend is expected to grow at 22.36%...
A stock just paid a dividend of $2.27. The dividend is expected to grow at 22.36% for five years and then grow at 3.96% thereafter. The required return on the stock is 10.02%. What is the value of the stock?
A stock just paid a dividend of $1.28. The dividend is expected to grow at 27.28%...
A stock just paid a dividend of $1.28. The dividend is expected to grow at 27.28% for three years and then grow at 3.92% thereafter. The required return on the stock is 11.35%. What is the value of the stock? A stock just paid a dividend of $1.95. The dividend is expected to grow at 25.66% for five years and then grow at 3.74% thereafter. The required return on the stock is 11.13%. What is the value of the stock?...
A stock just paid a dividend of $1.95. The dividend is expected to grow at 25.66%...
A stock just paid a dividend of $1.95. The dividend is expected to grow at 25.66% for five years and then grow at 3.74% thereafter. The required return on the stock is 11.13%. What is the value of the stock? Round to 2 decimal places please.
A stock just paid a dividend for $1.42. The Dividend is expected to grow 24.89% for...
A stock just paid a dividend for $1.42. The Dividend is expected to grow 24.89% for 3 years and then grow 3.83% afterwards. The required return on the stock is 13.43%. What is the value of the stock ?
A stock just paid a dividend of $2.68. The dividend is expected to grow at 24.72%...
A stock just paid a dividend of $2.68. The dividend is expected to grow at 24.72% for three years and then grow at 3.24% thereafter. The required return on the stock is 14.55%. What is the value of the stock?
A stock just paid a dividend of $2.07. The dividend is expected to grow at 27.50%...
A stock just paid a dividend of $2.07. The dividend is expected to grow at 27.50% for three years and then grow at 3.34% thereafter. The required return on the stock is 11.89%. What is the value of the stock?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT