Alexander Corp. will pay a dividend of $2.80 next year. The company has stated t

Question

Alexander Corp. will pay a dividend of $2.80 next year. The company has stated that it will maintain a constant growth rate of 5 percent a year forever.

Requirement 1: If you want a return of 17 percent, how much will you pay for the stock (Current Stock Price)? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

If you want a return of 12 percent, how much will you pay for the stock (Current Stock Price)? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16)

If you want a return of 12 percent, how much will you pay for the stock (Current Stock Price)? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16)

Explanation / Answer

Price of the stock = D1/Ke-G

Return of 17 percent

Price of the stock = 2.80/17%-5%

= 2.80/12% i.e 23.33 per share

Return of 12 percent

= 2.80/12%-5%

= 2.80/7% i.e 40 per share

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