Assuming the required return is 12 percent, the stock price today is $40.61.
Given:
Dividend=$2.58 per share
Increase in Dividend=20% and 15%
Number of year=2 years
Increase in Annual Dividend=3.6%
Required return=12%
P2=Stock price today
Now let calculate the stock price today
P2 = [$2.58(1+0.20)]/(1+.12) + [$2.58(1+.20)(1+.15)]/(1+.12)^2 + {[$2.58(1+.20)(1+.15)(1+.036)]/(0.12 − 0.036)}/(1+.12)^2
P2 = [$2.58(1.20)]/1.12 + [$2.58(1.20)(1.15)]/1.12^2 + {[$2.58(1.20)(1.15)(1.036)]/(0.12 − 0.036)}/1.12^2
P2=($3.096/1.12)+ ($3.5604/1.2544)+ [($3.68857/0.084)/1.2544]
P2=$2.7643+$2.838329+($43.91155/1.2544)
P2=$2.7643+$2.838329+$35.0060
P2=$40.61
Inconclusion assuming the required return is 12 percent, the stock price today is $40.61.
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Answer: the correct answer is D) $250,000
Explanation:
Answers
transactions relating to stockholder's equity
Issued shares 10,000* $7 = $70,000
Issued shares 20,000*$8 = $160,000
net income = $100,000
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Sub Total $330,000
Debts
50,000 dividend ($50,000)
3,000 *$10 treasury stock ($30,000)
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Sub Total ($80,000)
Total $330,000-$80,000 = $250,000
