Alexander Corp. will pay a dividend of $2.72 next year. The company has stated t

Question

Alexander Corp. will pay a dividend of $2.72 next year. The company has stated that it will maintain a constant growth rate of 4.5 percent a year forever.

Requirement 1: If you want a return of 12 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 8 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

Hi,

Please find the detailed answer as follows:

Current Stock Price = D1/(ke - g)

Part A:

Current Stock Price = 2.72/(12% - 4.5%) = $36.27

Answer for Part A is $36.27

-----

Part B:

Current Stock Price = 2.72/(8% - 4.5%) = $77.71

Answer for Part B is $77.71.

Thanks.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.