Question

Schnussenberg Corporation: Schnussenberg Corporation just paid a dividend of $0.98 (D0 = $0.98) per share and...

Schnussenberg Corporation:

Schnussenberg Corporation just paid a dividend of $0.98 (D0 = $0.98) per share and has a required rate of return of 9.4%, and its dividends is expected to grow at 8.17% per year.

1.What is the company’s current stock price, P0?

2. What is the company’s expected stock price in 6 years (what is P6)?

Homework Answers

Answer #1

Current dividend paid=$0.98

required rate of return=9.4%

Dividend Growth rate=8.17%

As we know the formula for find out stock price

Kce=D1/P0+g

Here Kce=required rate of retuen ((hurdle rate in this case)

D1=nex year's dividend

g= dividend growth

puttin the values in the formula and solving:

0.094=0.98*(1+.0817)/P0+0.0817

P0=0.98*(1+0.0817)/(0.094-0.0817)=$8.618423

b) Price of stock after 6 years

0.094=0.98*(1+.0817)^7/P0+0.0817

P0=0.98*(1+0.0817)/(0.094-0.0817)=$13.80603

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