Question

In: Finance

A stock is trading for 15, and just paid a dividend of 0.8 which is expected...

A stock is trading for 15, and just paid a dividend of 0.8 which is expected to grow at a fraction 0.08 per year. If Goldman Sacs charges a fraction 0.10 as a flotation cost, what is the required rate of return on a new stock issue?

Solutions

Expert Solution

Information provided:

Current stock price= $15

Current dividend= 0.8

Dividend growth rate= 8%

Flotation cost= 10%

The required return on new stock issue is computed as:

Required return on new stock issue = Next year’s dividend/ Share price (1-Flotatin cost)+ growth rate

                                                                      = $0.80(1 + 0.08)/ $15*(1 – 0.10) + 0.08

                                                                      = $0.8640/ $13.50 + 0.08

                                                                      = 0.0640 + 0.08

                                                                      = 0.1440*100

                                                                      = 14.40%

In case of any query, kindly comment on the solution.

jeff jeffy answered 10 months ago
Next > < Previous

Related Solutions

The Apple just paid a $0.8 quarterly dividend. The dividends are expected to grow at 20%...
The Apple just paid a $0.8 quarterly dividend. The dividends are expected to grow at 20% per year for the next 3 years. After that, the growth rate is expected to go down to the industry average of 8% per year and stay at this level forever. The required rate of return on Apple is 15% per annum. 1.Draw the time line, showing dividends of Apple. 2.Find the price of Apple stock. 3.Find the value of its growth opportunities (PVGO)....
The ABC COmpany just paid a $0.8 quarterly dividend. The dividends are expected to grow at...
The ABC COmpany just paid a $0.8 quarterly dividend. The dividends are expected to grow at 20% per year for the next 3 years. After that, the growth rate is expected to go down to the industry average of 8% per year and stay at this level forever. The required rate of return on ABC is 15% per annum. 1)Draw the time line, showing dividends of ABC. 2)Find the price of ABC stock. 3)Find the value of its growth opportunities...
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. 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 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?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT