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nlexa [21]
4 years ago
9

Grateful Eight Co. is expected to maintain a constant 3.7 percent growth rate in its dividends indefinitely. If the company has

a dividend yield of 5.6 percent, what is the required return on the company’s stock?
Business
2 answers:
Rama09 [41]4 years ago
4 0

Answer:

Ke 0.095072 = 9.5072%

Explanation:

We will work the horizon value formula to get the required turn of the firm:

\frac{divends}{return-growth} = Intrinsic \: Value

\frac{divends}{Price} = return-growth

\frac{divends}{Price} + growth = return

$Cost of Equity =\frac{D_1}{P)} +g

Given that the dividend yield is 5.6

that means that means the dividends are 5.6% of the stock price

As the horizon is calculated with the next year dividends we will multiply it by the growth rate:

D1 5.6 x (1+3.7%) = 5.8072

P 100

f 0.00

g 0.037

$Cost of Equity =\frac{5.8072}{100} +0.037

Ke 0.095072

Marat540 [252]4 years ago
3 0

Answer:

Required rate of return = 9.3%

Explanation:

Dividend yield is the rate of dividend based on the price of the share.

The formula for dividend yield is,

Dividend yield = Dividend / Price

Thus, D1 / P0 = 0.056

For a constanat growth stock, the price of share is calculated using the following formula,

P = D1 / r-g

Rearranging the formula for r, we get,

r = (D1 / P0) + g

Thus, r = 0.056 + 0.037 = 0.093  or 9.3%

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Elanso [62]

Answer:

A = $2,989.30

B = $2,722.33

C = $2,483.68

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E = $2,441.08

Explanation:

Given:

Future value (A) = $4,000

Present value (P) = ?

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A. R = 6% = 0.06

P=\frac{A}{(1+R/100)^N}\\P=\frac{4000}{(1+0.06)^5}\\P=\frac{4000}{(1.06)^5}\\\\P=\frac{4000}{(1.06)^5}\\P=\frac{4000}{1.33822558}\\\\P=2,989.032

B. R = 8% = 0.08

P=\frac{A}{(1+R/100)^N}\\P=\frac{4000}{(1+0.08)^5}\\P=\frac{4000}{(1.08)^5}\\\\P=\frac{4000}{1.46932808}\\\\P=2,722.3327

C. R = 10% = 0.1

P=\frac{A}{(1+R/100)^N}\\P=\frac{4000}{(1+0.1)^5}\\P=\frac{4000}{(1.1)^5}\\\\P=\frac{4000}{1.61051}\\\\P=2,483.6852

D. R= 10/2 = 5% N=5*2 = 10

P=\frac{A}{(1+R/100)^N}\\P=\frac{4000}{(1+0.05)^{10}}\\P=\frac{4000}{(1.05)^{10}}\\\\P=\frac{4000}{1.62889463}\\\\P=2,455.6530

E. R = 10/4 = 2.5% N = 5*4 = 20

P=\frac{A}{(1+R/100)^N}\\P=\frac{4000}{(1+0.025)^{20}}\\P=\frac{4000}{(1.025)^{20}}\\\\P=\frac{4000}{1.63861644}\\\\P=2,441.08377

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