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?

Solutions

Expert Solution

Price of the Stock = [ Recent Dividend * ( 1 + Growth Rate ) ] / [ Cost of Equity - Growth Rate ]

$102.09 = [ $2.19 * ( 1.0599 ) ] / [ Cost of Equity - 5.99% ]

Cost of Equity - 5.99% = $2.27366 / $102.09

Cost of Equity = 8.2637%

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

7-Suppose that your company just paid a dividend of $1.2; the dividends are expected to grow...

7-Suppose that your company just paid a dividend of $1.2; the dividends are expected to grow at a constant rate of 5% indefinitely. Today’s market price/share is $45. Suppose also that your company has some bonds outstanding in the market selling for $1,035. The bonds have 8 years left to maturity, with 8% coupon rate with semi-annual payments. If your company’s capital structure is 35% debt and 65% equity, with the tax rate of 40% what is the WACC? Your...

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?

A stock just paid an annual dividend of $2.7. The dividend is expected to grow by...

A stock just paid an annual dividend of $2.7. The dividend is expected to grow by 6% per year for the next 4 years. The growth rate of dividends will then fall steadily by 0.25% per year, from 6% in year 4 to 5% in year 8 and stay at that level forever. The required rate of return is 12%. What is the expected dividend in 8 years? What is the expected stock price in 8 years? What should be...

Subjects