LED Corp.'s common stock paid $2.50 in dividends last year (D0). Dividends are expected to grow at a 12minuspercent annual r

Question

3 years ago

11

ate forever. If LED's current market price is $40.00, and your required rate of return is 23 percent, should you purchase the stock?

1 answer:

frozen [14] · Answer 1 · 2022-03-31T16:31:49+03:00

Answer:

No, you should not purchase the stock as the stock is over priced.

Explanation:

Stock Price should be

Stock Price = Dividend last year / Required Rate of Return

= $2.50 / 23%

= $10.86

The current market price of the stock is $40 so the stock is over priced as it is $10.86 that is why you should not purchase the stock.

LED​ Corp.'s common stock paid​ $2.50 in dividends last year ​(D0​). Dividends are expected to grow at a 12minuspercent annual r