2. Alexander Corp. will pay a dividend of $4.10 next year. The company has state

Question

2. Alexander Corp. will pay a dividend of $4.10 next year. The company has stated that it will maintain a constant growth rate of 5.25 percent a year forever.

If you want a return of 18 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).)

If you want a return of 10 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).)

If you want a return of 18 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

Hi,

Please find the answer as follows:

Requirement 1:

Current Stock Price = D1/(ke - g)

D1 = 4.10

ke = 18%

g = 5.25%

Current Stock Price = 4.10/(.18-.0525) = 32.16

Requirement 2

D1 = 4.10

ke = 10%

g = 5.25%

Current Stock Price = 4.10/(.10-.0525) = 86.32

Thanks.

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

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