Question 8 (7 points) The stock of Robotic Atlanta Inc. is trading at $ 22.07 pe

Question

Question 8 (7 points) The stock of Robotic Atlanta Inc. is trading at $ 22.07 per share. In the past, the firm has paid a constant dividend (i.e., g - o) of $ 5.50 per share and it has just paid an annual dividend (i.e, DO - 5.50). However, the company will announce today new investments that the market did not know about. It is expected that with these new investments, the dividends will grow at % forever. Assuming that the discount rate rema (Round your answer to 2 decimal places and record your answer without dollar sign or c Your Answer: ins the same, what will be the price of the stock after the announcement? ommas). Answer Save Question 9 (6 points)

Explanation / Answer

Discount rate=Dividend/Current price(due to no growths)

=(5.5/22.07)=0.249207068

Hence current price=Dividend for next period/(Discount rate-Growth rate)

(5.5*1.034)/(0.249207068-0.034)=$26.43(Approx).

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