Firm K will pay a common stock dividend of $4.22 per share one year from now. Th

Question

Firm K will pay a common stock dividend of $4.22 per share one year from now. They intend to grow the dividend by 3% each year forever. If the stock's required return is 7.2%, what is the price per share today? Round your answer to the nearest cent.

Firm K paid a common stock dividend of $1.71 per share this morning. They intend to grow the dividend by 1% each year forever. If the stock's required return is 5.7%, what is the price per share today? Round your answer to the nearest cent.

The next dividend payment by Firm C will be $2.44 per share. The dividends are anticipated to maintain a 2.8 percent growth rate, forever. If the stock currently sells for $38.79 per share, what is the required return? Express your answer as a percentage and round to four decimal places (e.g., 15.83% = 0.1583).

Firm S stock currently sells for $27.55 per share. The market requires a 8 percent return on the firm's stock, and the dividend to be paid one year from now is $1.82. The company maintains a constant growth rate in dividends. What is this growth rate? Express your answer as a percentage and round to four decimal places (e.g., 15.83% = 0.1583).

Firm T stock currently sells for $50.77 per share. The market requires a 9 percent return on the firm's stock, and the most recent annual dividend per share was $2.67. The company maintains a constant growth rate in dividends. What is this growth rate? Express your answer as a percentage and round to four decimal places (e.g., 15.83% = 0.1583).

Explanation / Answer

Firm K will pay a common stock dividend of $4.22 per share one year from now. They intend to grow the dividend by 3% each year forever. If the stock's required return is 7.2%, what is the price per share today? Round your answer to the nearest cent.

The price per share today = 4.22/(0.072-0.03) = $ 100.48

Firm K paid a common stock dividend of $1.71 per share this morning. They intend to grow the dividend by 1% each year forever. If the stock's required return is 5.7%, what is the price per share today? Round your answer to the nearest cent.

The price per share today = 1.71*1.01/(0.057-0.01) = $ 36.75

The next dividend payment by Firm C will be $2.44 per share. The dividends are anticipated to maintain a 2.8 percent growth rate, forever. If the stock currently sells for $38.79 per share, what is the required return? Express your answer as a percentage and round to four decimal places (e.g., 15.83% = 0.1583).

The price per share today = 2.44/(Re-0.028)

38.79 = 2.44/(Re-0.028)

Re = 2.44/38.79 + 0.028

Re = 0.0909

Required Return = 9.09%

Firm S stock currently sells for $27.55 per share. The market requires a 8 percent return on the firm's stock, and the dividend to be paid one year from now is $1.82. The company maintains a constant growth rate in dividends. What is this growth rate? Express your answer as a percentage and round to four decimal places (e.g., 15.83% = 0.1583).

The price per share today = 1.82/(0.08-g)

27.55 = 1.82/(0.08-g)

G = 0.08 - 1.82/27.55

G = 0.0139

growth rate = 1.39%

The price per share today = 2.67*(1+g)/(0.09-g)

50.77 = 2.67*(1+g)/(0.09-g)

0.09 - G = (2.67/50.77)*(1+g)

0.09 -g = 0.05259 *(1+g)

0.09-g = 0.05259+ 0.05259g

1.05259 g = 0.09-0.05259

g = 0.03741/1.05259

g = 0.03554

growth rate = 3.55%

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