Alexander Corp. will pay a dividend of $4.40 next year. The company has stated t

Question

Alexander Corp. will pay a dividend of $4.40 next year. The company has stated that it will maintain a constant growth rate of 5 percent a year forever.

If you want a return of 17 percent, how much will you pay for the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

If you want a return of 10 percent, how much will you pay for the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Alexander Corp. will pay a dividend of $4.40 next year. The company has stated that it will maintain a constant growth rate of 5 percent a year forever.

Requirement 1:

If you want a return of 17 percent, how much will you pay for the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

  Current stock price $    Requirement 2:

If you want a return of 10 percent, how much will you pay for the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

  Current stock price $   

Explanation / Answer

1) dividend discount model'

Stock price = D1/(r-g) = 4.4/(.17-.05) = $36.67

2)

Stock price = D1/(r-g) = 4.4/(.10-.05) = $88

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