Common Stock Value-Constant Growth: Elk County Telephone has paid the dividends
ID: 2760128 • Letter: C
Question
Common Stock Value-Constant Growth: Elk County Telephone has paid the dividends shown in the following table over the previous 6 years. The firm's dividend per share next year is expected to be $5.36
a.If you can earn 15% on similar - risk investments the most you would be willing to pay per share is ______ (round nearest cent)
b.If you can earn 12% on similar - risk investments the most you would be willing to pay per share is ______ (round nearest cent)
2015 $5.11 2014 $4.86 2013 $4.63 2012 $4.41 2011 $4.20 2010 $4.00Explanation / Answer
a) Dividend in 2010 4.00 Dividend in 2011 4.20 Growth rate = (4.20 - 4)/4 5% 2010 4.00 2011 4.20 2012 4.41 2013 4.63 2014 4.86 2015 5.11 2016 5.36 a) P0 = D1/(ke-g) Where P0 is the price Ke is the required return 15.00% g is the growth rate 5.00% D1 is dividend at end of year 5.11 P0 = 5.36/(15%- 5%) P0 = 5.36/(10%) P0 = 53.60 Price would be $53.60 b) P0 = D1/(ke-g) Where P0 is the price Ke is the required return 12.00% g is the growth rate 5.00% D1 is dividend at end of year - P0 = 5.36/(12%- 5%) P0 = 5.36/(7%) P0 = 76.58 Price would be $76.58
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.