Answer:
a. 9.07%
b. 5.93%
c. 12.07%
Explanation:
Dividend valuation method is used to calculate the the value of stock based on the dividend paid, its growth rate and rate of return.
Stock Price = Dividend / ( Rate of return - Growth rate )
a.
$27 = $1.64 / ( Rate of return - 3% )
Rate of return - 0.03 = $1.64 / $27
Rate of return - 0.03 = 0.0607
Rate of return = 0.0607 + 0.03
Rate of return = 0.0907 = 9.07%
b.
$27 = $1.64 / ( 12% - Growth rate )
0.12 - Growth rate = $1.64 / $27
0.12 - Growth rate = 0.0607
Growth rate = 0.12 - 0.0607
Growth rate = 0.0593 = 5.93%
c.
$27 = $1.64 / ( Rate of return - 6% )
Rate of return - 0.06 = $1.64 / $27
Rate of return - 0.06 = 0.0607
Rate of return = 0.0607 + 0.06
Rate of return = 0.1207 = 12.07%
