7. Plantoday Inc. will pay a $3.04 per share dividend nxt year. The company pled

Question

7. Plantoday Inc. will pay a $3.04 per share dividend nxt year. The company pledges to increase its dividend by 3.8 percent per year indefinitely. If you require a return of 11 percent on your investment how much will you pay for the company's stock today? Round your answer to 2 decimal places 8. Lily Corp. has an issue of preferred stock outstanding that pays a $5.50 dividend every year in perpetuity. If this issue currently sells for $108 per share, what is the required return? Round your answer to 2 decimal places

Explanation / Answer

We will use dividend discount model to find stock value.

= P/ (r - g)

Where,

P= dividend (D1) = 3.04

i= required rate of return = 0.11

g= dividend growth rate = 0.038

Let's put all the values in the formula,

Stock value = 3.04/ (0.11 - 0.038)

= 3.04/ 0.072

= 42.22

So the price of the stock is 42.22

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