C. Problem: (05 marks) Stock C just paid a dividend of $2. The required return is...

C. Problem:

Stock C just paid a dividend of $2. The required return is 12%. Find the price of the stock when the dividend growth rates are:

a. 0%

b. 5%

Solutions

Expert Solution

Ans.

Growth rate , G = 0%

Dividend , D = $2

RR = 12% or 0.12

Stock Price = D ( 1 + G ) / ( RR - G )

= 2 ( 1 + 0 ) / ( 0.12 - 0 )

= 2 / 0.12 = 16.67

Growth rate , G = 5% or 0.5

Dividend , D = $2

RR = 12% or 0.12

Stock Price = D ( 1 + G ) / ( RR - G )

= 2 ( 1 + 0.05) / ( 0.12 - 0.05 )

= 2 ( 1.05 ) / 0.07

= 2.1 / 0.7 = 30

------------------------------------------------------------------------------------------

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

A stock just paid a dividend of $1.23 how is it required rate of return of...

A stock just paid a dividend of $1.23 how is it required rate of return of 10.7% and a constant dividend growth rate of 2.8% what return Will you earn if you buy the stock today and sell it after the next dividend assume the returns and growth rate remains The Holding Period return is: a 5.3% b 8.5% c 11.7% D 10.6%

A stock just paid a dividend of D0 = $8.50. The required rate of return is rs...

A stock just paid a dividend of D0 = $8.50. The required rate of return is rs = 12.3%, and the constant growth rateis g =6.0%. What is the stock’s intrinsic value?

Bozo Inc. just paid an annual dividend of $1.50 per share, and the required return for this stock is 15%.

Bozo Inc. just paid an annual dividend of $1.50 per share, and the required return for this stock is 15%. A. Calculate Bozo's stock value with the following assumptions A. No dividend growth B. A constant growth of 5% C. A constant growth of 10% D. A constant growth of 5% and a requiredi return of 10%

A stock just paid a dividend of $2. The stock is expected to increase its dividend...

A stock just paid a dividend of $2. The stock is expected to increase its dividend payment by 50% per year for the next 3 years. After that, dividends will grow at a rate of 5% forever. If the required rate of return is 7%, what is the price of the stock today?

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 $2.47. The dividend is expectedto grow at 23.57%...

A stock just paid a dividend of $2.47. The dividend is expected to grow at 23.57% for three years and then grow at 4.01% thereafter. The required return on the stock is 13.91%. What is the value of the stock? Round to 2 decimal places. Also, a stock just paid a dividend of $1.49. The dividend is expected to grow at 25.13% for five years and then grow at 3.72% thereafter. The required return on the stock is 11.24%. What...

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.

Subjects