10 P QUESTION 7 Company Z is expected to pay a S3 dividend at the end of this ye

Question

10 P QUESTION 7 Company Z is expected to pay a S3 dividend at the end of this year. You expect Company Z's dividend to grow by 2% per year forever. Company Z's equity cost of capital is 13% what is the value of a share of Company Z's stock? Note: Express your answers in strictly numerical terms. For example, if the answer is S500, enter 500 as an answer. 10 P QUESTION 8 "Company E has a dividend yield of 6% and a cost of equity capital of 1 %. Luther Industries' dividends are expected to grow at a constant rate indefinitely. What is the growth rate of the dividends of Company E's stock? Note: Express your answers in strictly numerical terms. For example, if the answer is 596, enter 0.05 as an answer."

Explanation / Answer

7). P0 = D1/(r - g)

= 3 / (0.13 - 0.02) = 3 / 0.11 = 27.27

8). Ke = [D0(1+g)/P0] + g

0.01 = [(D0/P0)(1+g)] + g

g = 0.06(1+g) - 0.01

g = 0.06 + 0.06g - 0.01

g - 0.06g = 0.05

0.94g = 0.05

g = 0.05/0.94

g = 0.0532

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.