Alexander Corp. will pay a dividend of $3.00 next year. The company has stated t

Question

Alexander Corp. will pay a dividend of $3.00 next year. The company has stated that it will maintain a constant growth rate of 4.5 percent a year forever.

If you want a return of 15 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 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).)

If you want a return of 15 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).)

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Share Price = D1/(Ke - g)

Part A:

Current Share Price = 3/(.15 - .045) = $28.57

Answer for Part A is $28.57

--------

Part B:

Current Share Price = 3/(.08 - .045) = $85.71

Answer for Part B is $85.71

Thanks.

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