Red, Inc., Yellow Corp., and Blue Company each will pay a dividend of $2.85 next
ID: 2771785 • Letter: R
Question
Red, Inc., Yellow Corp., and Blue Company each will pay a dividend of $2.85 next year. The growth rate in dividends for all three companies is 5 percent. The required return for each company’s stock is 7 percent, 10 percent, and 13 percent, respectively. What is the stock price for each company? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Red, Inc., Yellow Corp., and Blue Company each will pay a dividend of $2.85 next year. The growth rate in dividends for all three companies is 5 percent. The required return for each company’s stock is 7 percent, 10 percent, and 13 percent, respectively. What is the stock price for each company? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Explanation / Answer
Stock Price(P0)=D1/Ke-g
Red: (P0)=2.85/.07-.05
= $ 142.50
Yellow: (P0)=2.85/.10-.05
= $ 57
Blue: (P0)=2.85/.13-.05
= $ 35.63
Stock Price Red $ 142.50 Yellow $ 57.00 Blue $ 35.63Related Questions
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