The KJ Corporation has averaged an ROE of 18% over the past 5 years and that sho

Question

The KJ Corporation has averaged an ROE of 18% over the   past 5 years and that should continue into the future.  The firm has a payout ratio of 56% on earnings   per share of $7.83 and paid the dividend yesterday.   The discount rate for a firm of KJ's risk   level is 18% a) What is the   expected Growth Rate of KJ's dividend? (note: round to   the nearest 100th of a percent) (1 mark) b) What is KJ's   current stock price?               (note: round to the nearest cent) (1 mark) The KJ Corporation has averaged an ROE of 18% over the   past 5 years and that should continue into the future.  The firm has a payout ratio of 56% on earnings   per share of $7.83 and paid the dividend yesterday.   The discount rate for a firm of KJ's risk   level is 18% a) What is the   expected Growth Rate of KJ's dividend? (note: round to   the nearest 100th of a percent) (1 mark) b) What is KJ's   current stock price?               (note: round to the nearest cent) (1 mark)

Explanation / Answer

a) What is the expected Growth Rate of KJ's dividend? (note: round to the nearest 100th of a percent) (1 mark)

Growth rate = 18*(1-0.56) = 7.92%

b) What is KJ's current stock price? (note: round to the nearest cent) (1 mark)

Expected Dividend = 7.83*56%*1.0792 = 4.73

KJ's current stock price = 4.73/(0.18-0.0792)

KJ's current stock price = $ 46.93

The KJ Corporation has averaged an ROE of 18% over the past 5 years and that should continue into the
future. The firm has a payout ratio of
56% on earnings per share of $7.83 and paid the dividend yesterday. The discount rate for a firm of KJ's

risk level is 18%

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