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Lubov Fominskaja [6]
3 years ago
6

Last year, when the stock of Waldo, Inc., was selling for $28 a share, the dividend yield was 3.5 percent. Today, the stock is s

elling for $35 a share. What is the required return on this stock if the company maintains a constant dividend growth rate of 5 percent?
Business
1 answer:
dimaraw [331]3 years ago
6 0

Answer:

The required rate of return on the stock is 8.087%

Explanation:

The constant growth model of DDM is used to calculate the price of a stock whose dividends are expected to grow at a constant rate forever. The DDM values a stock based on the present value of the expected future dividends from the stock. The price of the stock under this model can be calculated as,

P0 = D0 * (1+g) / (r - g)

Where,

  • P0 is price of the stock today
  • D0 * (1+g) is the dividend expected from the stock for the next period
  • r is the required rate of return
  • g is the constant growth rate in dividends

To calculate the r or required rate of return, we first need to determine the dividend that was paid last year. Then we will apply the constant growth rate to that dividend to calculate the dividend today or D0. We will them input the value of stock price, the current dividend and the dividend growth rate in the formula above to calculate the required rate of return.

<u>Dividend per share - Last year</u>

Dividend yield = Dividend per share / Price per share

0.035 = Dividend per share / 28

0.035 * 28 = Dividend per share

Dividend per share = $0.98

The dividend per share today (D0) is,

D0 = 0.98 * (1+0.05)

D0 = $1.029

35 = 1.029 * (1+0.05) / (r - 0.05)

35 * (r - 0.05) = 1.08045

35r - 1.75 = 1.08045

35r = 1.08045 + 1.75

r = 2.83045 / 35

r = 0.08087 or 8.087%

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Answer:

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Explanation:

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We proceed as follows;

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Explanation:

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According to the question, the organizers uses the proper requirement with the help of corporation code to form a proper corporation.

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2 years ago
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77julia77 [94]
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Answer:

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2. Adjusting Journal Entry:

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Explanation:

a) Data and Calculations:

Product   Total Cost        Total Net Reali-   LCNRV        Write-downs

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101           $ 154,000          $ 117,000          $ 117,000        $ 37,000

102               111,000            127,000              111,000            0

103               77,000             67,000              67,000            10,000

104              47,000              67,000              47,000            0

Total      $ 389,000        $ 378,000        $ 342,000        $ 47,000

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