Red, Inc., Yellow Corp., and Blue Company each will pay a dividend of $3.20 next

Question

Red, Inc., Yellow Corp., and Blue Company each will pay a dividend of $3.20 next year. The growth rate in dividends for all three companies is 7 percent. The required return for each company's stock is 9.70 percent, 12.30 percent, and 14.30 percent, respectively.

Red, Inc., Yellow Corp., and Blue Company each will pay a dividend of $3.20 next year. The growth rate in dividends for all three companies is 7 percent. The required return for each company's stock is 9.70 percent, 12.30 percent, and 14.30 percent, respectively.

Explanation / Answer

Current price=D1/(Required return-Growth rate)

1.Current price=3.2/(0.097-0.07)=$118.52(Approx)

2.Current price=3.2/(0.123-0.07)=$60.38(Approx)

3.Current price=3.2/(0.143-0.07)=$43.84(Approx)

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