Xytex Products just paid a dividend of $1.62 per share, and the stock currently

Question

Xytex Products just paid a dividend of $1.62 per share, and the stock currently sells for $28. If the discount rate is 10 percent, what is the dividend growth rate? 1. 2. Tiger Industries just paid a dividend of S1.10 per share. The dividends are expected to grow at a 20 percent rate for the next six years and then level off to a 4 percent growth rate indefinitely. If the required return is 12 percent, what is the value of the stock today? Calculate T-bill price based on the WS] quotation: Days to Maturity Bid Ask Chg. Ask Yld. 94 3. 1.74 1.73 -0.04 1.76 a face value of $10,000?

Explanation / Answer

Question 1 - We can solve this question by using gordan growth method

As per gordan growth method,

Price of stock = Current Dividend*(1+g)/(r-g), where g is growth rate and r is required rate of return

r is discount rate in this question

r = 10%

Current dividend = $1.62

Price of stock = $28

Now putting all this value in gordan growth equation

28 = 1.62*(1+g)/(0.1-g)

17.28 = (1+g)/(0.1-g)

17.28*(0.1-g) = 1+g

1.728 - 17.28g = 1+g

0.728 = 18.28g

g = 0.0398

So growth is 3.98%

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