If shares of common stock of the Samson Co. offer an expected total return of 13

Question

If shares of common stock of the Samson Co. offer an expected total return of 13% and if the growth rate in future dividends of the stock are expected to be 4.5% per year forever, what is the stock's dividend yield (i.e., D_1/P_0) The stock of Cabbor, Incorporated is trading at $70.00 per share. The company just paid a dividend of $5.00 per share (that is, D_0 = 5.00). The growth rate in dividends is projected to be 6 percent per year forever. What is Cabbor's cost of equity capital (that is, compute the required rate of return on the stock)

Explanation / Answer

23)p = D*(1+r)/(r-g)

D/p = (r-g)/(1+g) = (.13-0.045)/(1+0.045) = 8.13%

24)

Price = recent dividend* ( 1 + growth rate )/( cost of equity - growth rate)

70= 5 * (1 + .06)/(cost of equity - 0.06)

=13.57%

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