4. One share of Kilo, Inc., stock is selling for $43.60 a share. The company pay

Question

4. One share of Kilo, Inc., stock is selling for $43.60 a share. The company pays a constant annual dividend and has a required rate of return of 8 percent. What is the amount of Kilo’s dividend?

5. Beets and Cabbage just paid an annual dividend of $1.20 per share this year. The company announced that future dividends will increase by 2.5 percent annually forever. What is the amount of the expected dividend in year 4?

6. Winslow and Daughters just paid their annual dividend of $2.20 a share. They recently announced that all future dividends will be increased by 2 percent annually for ever. What is one share of this stock worth to you today if you require a 14 percent rate of return?

Explanation / Answer

Solution 4:

Price of the stock with constant dividend is :

Price = dividend / R

43.60 = Dividend / 0.08

Dividend = 43.60 x 0.08

                = 3.488 or 3.49

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