(Common stock valuation) The common stock of NCP paid $1.27 in dividends last ye

Question

(Common stock valuation) The common stock of NCP paid $1.27 in dividends last year. Dividends are expected to grow at an annual rate of 7.20 percent for an indefinite number of years. a. If your required rate of return is 9.40 percent, what is the value of the stock for you? b. Should you make the investment? a. If your required rate of return is 9.40 percent, the value of the stock for you is S (Round to the nearest cent.) b. Should you make the investment? (Select from the drop-down menus.) You price because the stock would be undervalued. make the investment if your expected value of the stock is ? V than the current market greater less

Explanation / Answer

1)Price = D0(1+g)/(Rs-g)

       = 1.27(1+.072)/(.094-.072)

      = 1.27 * 1.072 / .022

      = $ 61.88 per share

2)a)should

b)greater

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