#8 29% D 5:45 PM ezto.mheducation.com o Sprint Question 8 (of 16) 10.00 points P

Question

#8 29% D 5:45 PM ezto.mheducation.com o Sprint Question 8 (of 16) 10.00 points Problem 7-14 Constant-Growth Model (LO3) Gentleman Gym just paid its annual dividend of $2 per share, and it is widely expected that the dividend will increase by 4% per year indefinitely. What price should the stock sell at if the discount rate is 12%. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Stock price What price should the stock sell at if the discount rate is 8%. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Stock price Hints References eBook & Resources Hint 1 Check roy work

Explanation / Answer

Stock price at discount rate 12%:

= $2×(1+4%)÷(12%-4%)

= $26 per share

Stock price at discount rate 8%:

= $2×(1+4%)÷(8%-4%)

= $52 per share

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