Common stock value (LO5) Laser Optics will pay a common stock dividend of $1.60

Question

Common stock value (LO5) Laser Optics will pay a common stock dividend of $1.60 at the end of the year (D1). The required return on common stock (Ke) is 13 percent. The firm has a constant growth rate (g) of 7 percent. Compute the current price of the stock (P0). __________

30. Common stock value (LO5) Sterling Corp. paid a dividend of $.80 last year. Over the next 12 months, the dividend is expected to grow at 10 percent, which is the constant growth rate for the firm (g). The new dividend after 12 months will represent D1. The required rate of return (Ke) is 14 percent. Compute the price of the stock (P0). __________

32. Common stock required rate of return (LO5) A firm pays a $3.80 dividend at the end of year one (D1), has a stock price of $50, and a constant growth rate (g) of 4 percent. Compute the required rate of return (Ke). __________

Explanation / Answer

29. P= D1/(r-g)= 1.60/(.13-.07)= $26.67. 30. P= .80(1.10)/(.14-.10)= $22 31. 50= 3.80/(r-.04) 50r- 2= 3.80 r= 5.80/50= 11.6%

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