Alexander Corp. will pay a dividend of $4.00 next year. The company has stated t

Question

Alexander Corp. will pay a dividend of $4.00 next year. The company has stated that it will maintain a constant growth rate of 5 percent a year forever. Requirement 1: If you want a return of 17 percent, how much will you pay for the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Requirement 2 If you want a return of 11 percent, how much will you pay for the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Explanation / Answer

To earn a 17% return the Value would be = Formula V=D/(Ke-g) D=$4 g=5%

the V=4/0.17-0.05 = 4/0.12 = 33.33

To earn 11% return the V=4/0.11-0.05 =4/0.06 =66.67

so to earn 17% return the Value to be paid =$33.33

to earn 11% return the Value to be paid =$66.67

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