7. Bradley Co. will pay $2.20 per share dividend next year. Their future dividen

Question

7. Bradley Co. will pay $2.20 per share dividend next year. Their future dividends will be increasing at 2 percent annually forever. What is one share of this stock worth to you today if you require a 14 percent rate of return?

8. The Martin Marotta Company increases their annual dividend by 4 percent each year. The common stock has a market price of $42.05 a share on a required return of 11 percent. What is the amount of the dividend this company just paid?

9. The common stock of Connor, Inc. is selling for $16 a share and has a dividend yield of 3.5 percent. What is the next year dividend amount?

Explanation / Answer

Solution 7:

Price of the stock with dividend growth:

Price = D1 /(R-g)

          = 2.20 /(0.14-0.02)

          = 18.33

Hence, the worth of this share is 18.33

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