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? a. The value of the stock for an investor who wants a return of 15​% with a constant annual dividend of ​$0.25 forever​ is:

Answer 1

Answer:

(a) price stock need =  $1.667

(b) price stock need =  $6.667

(c) price stock need =  $11.667

(d) price stock need =  $16.667

Explanation:

given data

return =  15​% = 0.15

to find out

what price would the stock need to be priced today

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 ?

solution

(a) price stock need = $\frac{0.25}{0.15}$

(a) price stock need =  $1.667

(b) price stock need = $\frac{1.00}{0.15}$

(b) price stock need =  $6.667

(c) price stock need = $\frac{1.75}{0.15}$

(c) price stock need =  $11.667

(d) price stock need = $\frac{2.50}{0.15}$

(d) price stock need =  $16.667