Alexander Corp. will pay a dividend of $3.20 next year. The company has stated t

Question

Alexander Corp. will pay a dividend of $3.20 next year. The company has stated that it will maintain a constant growth rate of 5 percent a year forever.

If you want a return of 17 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 11 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).)

Alexander Corp. will pay a dividend of $3.20 next year. The company has stated that it will maintain a constant growth rate of 5 percent a year forever.

Explanation / Answer

Answer:

1. Current Stock Price = D1 / (Ke - G) = 3.20 / (0.17-0.05) = $ 26.667

2. Current Stock Price =D1 / (Ke-G) = 3.20 (0.11-0.05) = $53.333

Thanks!!

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