This Question: 1 pt 5 of 10 (0 complete) This Quiz Common stock value--Constant

Question

This Question: 1 pt 5 of 10 (0 complete) This Quiz Common stock value--Constant growth McCracken Roo ng inc common stock pad a doo nd of $1 45 per share last year the amom.eeds eme s mana a What required rate of return for this stock would result in a price per share of $30? 00 ??? a ste ores pa te me teeseen b. If McCracken expects both earnings and dividends to grow at an amual rate of 12% what equired rae of rehum would result in a price per share of $30n a, The reared rate of ruum fortres stock, in order to resut n a price per share osso, ¡sLJ·Roud toto decimar places) b. The moured rate ofretam nor ous stockinoeder toresum in amce per share of S30, @[ % pound totwo mw peces )

Explanation / Answer

Ans a) Stock price = Dividend next year/ (r - g)

where r is rate of return and g is growth rate

Dividend next year = 1.45 * 1.08 * 1.08

since the growth rate of dividend is 8%

30 = 1.45*(1.08)^2/(r - .08)

r - .08 = .05638

r = .13638

r = 13.64%

Ans b) Dividend in next year = 1.45*(1.12)^2

30 = (1.45*1.12^2)/(r - .12)

r - .12 = .06063

r = .18063

r = 18.06%

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