rks Help MINDTAP Tamia Hilton? lueprint Problems Ch 9 Brigham ue on jun 24 at 6
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rks Help MINDTAP Tamia Hilton? lueprint Problems Ch 9 Brigham ue on jun 24 at 6 PM EDT : Hubbard Industries just paid a common dividend, Do, of $1.30. It expects to grow at a constant rate of 4% per year, if investors require a 10% return on equity, a what is the current price of Hubbard's common stock? Round your answer to the nearest cent. Do not round intermediate calculations per share Zero Growth Stocks Note that this is the same equation developed in Chapter 5 to value a perpetuity, and it is the same dividend payments in perpetuity. The valuation equation is simply the current dividend divided by the required rate of return equation used to value a perpetual preferred stock that entities its owners to regular, fixed that pays a constant annual dividend of $1.30 at the end of each year. If investors require an 8% return on the preferred stock, what is the price of the firm's perpetual preferred stock? Round your answer to the nearest cent. Do not round intermediate calculations. per share For many companies, it is not appropriate to assume that dividends will grow at a constant rate. Most firms go through life cycles where they experience different growth rates during different parts of the cycle. For valuing these firms, the generalized valuation and the constant growth are combined to arrive at the nonconstant growth valuation equation: 21Explanation / Answer
Answer to Quantitative Problem 1:
Cost of Equity = 10%
Expected Dividend (D1) = Current Dividend + (Current Dividend * Growth rate)
Expected Dividend (D1) = $1.30 + ($1.30 * 4%)
Expected Dividend (D1) = $1.352
Current Price (P0) =??
Growth rate (g) = 4%
Cost of Equity = D1 / P0 + g
0.10 = 1.352 / P0 + 0.04
0.06 = 1.352 / P0
P0 = $22.53
The Current Price of Hubbard’s Common Stock is $22.53.
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