You’ve collected the following information from your favorite financial website.
ID: 2822673 • Letter: Y
Question
You’ve collected the following information from your favorite financial website.
Using the dividend yield, calculate the closing price for Candy Galore on this day. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Stock price $
Assume the actual closing price for Candy Galore was $23.69. Your research projects a 5 percent dividend growth rate for Candy Galore. What is the required return for the stock using the dividend discount model and the actual stock price? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Required return %
Yld % PE
Ratio Close
Price Net
Chg Hi Lo 77.40 10.43 Palm Coal .36 2.6 6 13.90 –.24 55.81 33.42 Lake Lead Grp 1.54 3.8 10 40.43 –.01 130.93 69.50 SIR 2.00 2.2 10 88.97 3.07 50.24 13.95 DR Dime .80 5.2 6 15.43 –.26 35.40 20.78 Candy Galore .36 1.5 28 ?? .18
Explanation / Answer
1) Hi Low Stock Div Yld PE Ratio Close price Net chg 35.4 20.78 Candy Glore 0.36 1.5 28 ?? 0.18 Closing Price Dividend Yield = Dividend/stock price 0.015 0.36/P P 0.36/0.015 P 24 Price of the stock is $24 2) Required return=(Dividend/stock price)+growth 0.36(1.05)/23.69 + 5 0.015956+5 5.015956 The required return is 5.02%
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