Compute K e and K n under the following circumstances: a. D 1 = $9.80, P 0 = $98

Question

Compute Ke and Kn under the following circumstances:

a.

D1 = $9.80, P0 = $98, g = 5%, F = $8.00. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

  Ke

%

  Kn

%

b.

D1 = $.48, P0 = $27, g = 9%, F = $2.50. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

  Ke

%

  Kn

%

c.

E1 (earnings at the end of period one) = $8, payout ratio equals 25 percent, P0 = $35, g = 2.8%, F = $1.70. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

  Ke

%

  Kn

%

d.

D0 (dividend at the beginning of the first period) = $6, growth rate for dividends and earnings (g) = 4%, P0 = $61, F = $6. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

  Ke

%

  Kn

%

Compute Ke and Kn under the following circumstances:

Explanation / Answer

a.

Ke = D1/P0 + g

= 9.8/98 + 5% = 15.00%

Kn = D1/(P0-F) + g

= 9.8/(98-8) + 5% = 15.89%

b.

Ke = D1/P0 + g

= 0.48/27 + 9% = 0.1078 = 10.78%

Kn = D1/(P0-F) + g

= 0.48/(27 - 2.5) + 9% = 0.1096 = 10.96%

c.

D1 = E1*Payout ratio = 8*0.25 = 2

Ke = 2/35 + 2.8% = 8.51%

Kn = 2/(35-1.7) + 2.8% = 8.81%

d.

D0 = 6

D1 = 6*(1+0.04) = 6.24

Ke = 6.24/61 + 4% = 14.23%

Kn = 6.24/(61-6) + 4% = 15.35%

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