1. Daenerys Targaryen Demolition Co. just paid a dividend of $1.90 per share on
ID: 2633059 • Letter: 1
Question
1. Daenerys Targaryen Demolition Co. just paid a dividend of $1.90 per share on its stock. The dividends are expected to grow at a constant rate of 6 percent per year indefinitely. Investors require a return of 10 percent on the company's stock.
What is the current stock price?
What will the stock price be in 5 years? (Round your answer to 2 decimal places. (e.g., 32.16))
2. The next dividend payment by Bubba Gump Shrimp Company will be $1.84 per share. The dividends are anticipated to maintain a growth rate of 5 percent forever. If the stock currently sells for $36 per share, what is the required return? (Round your answer to 2 decimal places. (e.g., 32.16))
What will the stock price be in three years? (Round your answer to 2 decimal places. (e.g., 32.16))What will the stock price be in 5 years? (Round your answer to 2 decimal places. (e.g., 32.16))
2. The next dividend payment by Bubba Gump Shrimp Company will be $1.84 per share. The dividends are anticipated to maintain a growth rate of 5 percent forever. If the stock currently sells for $36 per share, what is the required return? (Round your answer to 2 decimal places. (e.g., 32.16))
Explanation / Answer
Current Stock price = 1.90*(1+6%)/(10%-6%)
=$50.35
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Stock price in three years = 1.90*(1+6%)^4/(10%-6%)
=$59.97
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stock price be in 5 years =
1.90*(1+6%)^6/(10%-6%)
=$67.38
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2. Required rate of return = 1.84/36+5%
=10.11%
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