AirJet Best Parts, Inc. is concerned regarding recent changes in its stock price

Question

AirJet Best Parts, Inc. is concerned regarding recent changes in its stock prices for the company and would like to determine the stock prices for key competitors. Key competitors include Raytheon, Boeing, Lockheed Martin, and the Northrop Grumman Corporation.
1. Using the dividend growth model and assuming a dividend growth rate of 5%, what is the rate of return for one of three key competitors? Use Yahoo Finance to obtain the latest dividend amount and price for one selected company. (15 pts)

2. Using the rate of return above, what should be the current share price of AirJet Best Parts, Inc. if the company maintains a constant 1% growth rate in dividends and the most recent dividend per share paid on the stock was $1.50? Show your calculations. (10 pts)

Explanation / Answer

1. Caculation of Required rate of return for Raytheon company:       For Raytheon by using yahoo finance the dividend is $0.43 and sock price is $44.73.          Required rate of return    = Dividend(1+g)/Current stock price + g                                               =0.43(1.05)/$44.73 + 0.05                                               =0.4515/$44.73 + 0.05                                               =0.06009                                               =6.009% Calculation of Required rate of return for Boeing company:        For Boeing by using yahoo finance the dividend is $0.42 and Current stock price is $70.47          Required rate of return   = $0.42(1.05)/$70.47 + 0.05                                              =0.0062 + 0.05                                              =0.0562                                              =5.63% Calculation of Required rate of return for  Lockheed Martin:       Company dividend is $0.75 and Current stock price is $75.73       Required rate of return   = $0.75/$75.73 + 0.05                                           =0.01 + 0.05                                           =0.06                                            =6% 2.    Take the required rate of return for the Lockheed Martin is 6%.    Therefore Market price per share for  AirJet Best Parts calculation is as follows                6%   = $1.50/Market price per share + 1%                6% - 1%       = $1.50/Market price per share                   Market price per share   = $1.50/5%                                                       =$1.50/0.05                                                       =$30       Company dividend is $0.75 and Current stock price is $75.73       Required rate of return   = $0.75/$75.73 + 0.05                                           =0.01 + 0.05                                           =0.06                                            =6% 2.    Take the required rate of return for the Lockheed Martin is 6%.    Therefore Market price per share for  AirJet Best Parts calculation is as follows                6%   = $1.50/Market price per share + 1%                6% - 1%       = $1.50/Market price per share                   Market price per share   = $1.50/5%                                                       =$1.50/0.05                                                       =$30

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