1) Hurricane Corporation expects to grow its dividend by 5% per year. The curren

Question

1) Hurricane Corporation expects to grow its dividend by 5% per year. The current dividend is $2 per share. The required return is 8%.

A.                What is the estimated value of a share of common stock?

B.                 If price is $40 and dividends were $1.50 per share but expected to grow at 4% per year, what would be the required rate of return?

How do I solve this in Excel?

2) How Do I solve this in Excel?

0%

3) How do I solve this in Excel?

Compute the expected return for the following investment State of nature   Probability Return       Boom 25% 20%       Average 60% 8%       Recession 15%

0%

Explanation / Answer

1)

A)

Stock price = D1÷(r-g)

D1 is next expected dividend

r is required return

g is growth rate

= $2×(1+5%)÷(8%-5%)

= $70

B)

Required return, re= D1÷Price+Growth rate

D1 is expected dividend

= $1.50×(1+4%)÷$40+4%

= 7.9%

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