Question

Dietterich Electronics wants its shareholders to earn a return of 15​% on their investment in the company. At what price would the stock need to be priced today if Dietterich Electronics had a a.  ​$0.25 constant annual dividend​ forever? b.  ​$1.00 constant annual dividend​ forever? c.  ​$1.75 constant annual dividend​ forever? d.  ​$2.50 constant annual dividend​ forever?

Answer 1

Answer:

A.) $1.667

B.) $6.667

C.) $11.667

D.) $16.667

Explanation:

GIVEN ;

Rate of return(r) = 15% = 0.15

Calculate what the stock price should be today if:

A.) ​$0.25 constant annual dividend​ forever

Dividend = payment per period

Therefore,

Price = (payment per period ÷ rate)

Price = ($0.25 ÷ 0.15) = $1.667

B.)$1.00 constant annual dividend​ forever

Price = (payment per period ÷rate)

Price = ($1.00 ÷ 0.15) = $6.667

C.)$1.75 constant annual dividend​ forever

Price = (payment per period ÷rate)

Price =($1.75 ÷ 0.15) = $11.667

D.)$2.50 constant annual dividend​ forever

Price = (payment per period ÷rate)

Price = ($2.50 ÷ 0.15) = $16.67

Answer 2

Answer:

We have the following answers for each as

a. $1.667

b. $6.667

c. $11.667

d. $16.667

Explanation:

We are been given the return rate as

Return rate = 15%/100%

Return rate= 0.15

Evaluating the stock price for, a, b, c d stating with a, we have

a. At ​$0.25 the constant annual dividend​ forever will be

Payment per period = dividend

The price of the divided will be

Price = payment per period ÷ rate

Which we have as

Price = $0.25 ÷ 0.15

Price = $1.667

b. At $1.00 the constant annual dividend​ forever will be

Price = payment per period ÷rate

Just as in a

Price = $1.00 ÷ 0.15

Price= $6.667

c. At $1.75 the constant annual dividend​ forever will be

Price = payment per period ÷rate

Which is the same to the previous method

Price =$1.75 ÷ 0.15

Price = $11.667

d. At $2.50 the constant annual dividend​ forever will be

Price = payment per period ÷rate

Just in the other calculation we have

Price = $2.50 ÷ 0.15

Price = $16.67