Question

Ecolap Inc. (ECL) recently paid a $0.32 dividend. The dividend is expected to grow at an...

Ecolap Inc. (ECL) recently paid a $0.32 dividend. The dividend is expected to grow at an 11.50 percent rate. The current stock price is $41.32.

  

What is the return shareholders are expecting? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

This question is based on the concept of Constant Growth Dividend Discount Model.

As per Constant Growth Dividend Discount Model the dividends will grow at a constant rate forever.

We will use the formula - Price of stock = D1 / (Re - g)

Where D1 is the dividend for year 1

Re is return to shareholders

g is growth

Note - In the question it states that "Ecolap Inc. (ECL) recently paid a $0.32 dividend" which means this is current dividend or D0.

Step 1 - Calculation of D1

D1 = D0 * (1 + g)

D1 = $0.32 * (1 + .1150)

D1 =  $0.32 * 1.1150

D1 = $0.3568

Step 2 - Calculation of return to shareholders

Price of stock = D1 / (Re - g)

41.32 = 0.3568 / (Re - 0.1150)

41.32Re - 4.7518 = 0.3568

41.32Re = 0.3568 + 4.7518

41.32Re = 5.1086

Re = 5.1086 / 41.32

Re = .1236 or 12.36% (rounded to 2 decimal places)

Therefore the Return shareholders are expecting is 12.36%

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Ecolap Inc. (ECL) recently paid a $0.86 dividend. The dividend is expected to grow at a...
Ecolap Inc. (ECL) recently paid a $0.86 dividend. The dividend is expected to grow at a 15.08 percent rate. At a current stock price of $52.42, what return are shareholders expecting? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))
Expected Return Ecolap Inc. (ECL) recently paid a $0.50 dividend. The dividend is expected to grow...
Expected Return Ecolap Inc. (ECL) recently paid a $0.50 dividend. The dividend is expected to grow at a 12 percent rate. At a current stock price of $11.20, what is the return shareholders are expecting? First convert D0 to D1 then use equation: expected return = I = D1+g                                   _____                                     p0
A company recently a $0.80 dividend. The dividend is expected to grow at 14.1 percent rate....
A company recently a $0.80 dividend. The dividend is expected to grow at 14.1 percent rate. At a current stock price of 67.60, what return are shareholders expecting ? Round to two places Expected return ______%
A firm recently paid a $0.85 annual dividend. The dividend is expected to increase by 12...
A firm recently paid a $0.85 annual dividend. The dividend is expected to increase by 12 percent in each of the next four years. In the fourth year, the stock price is expected to be $60. If the required return for this stock is 14.50 percent, what is its current value? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Hunter Petroleum Corporation paid a $2 dividend last year. The dividend is expected to grow at...
Hunter Petroleum Corporation paid a $2 dividend last year. The dividend is expected to grow at a constant rate of 5 percent forever. The required rate of return is 12 percent (this will also serve as the discount rate in this problem). (Use a Financial calculator to arrive at the answers.) a. Compute the anticipated value of the dividends for the next three years. (Do not round intermediate calculations. Round the final answer to 3 decimal places.) Anticipated value   D1...
Martin Office Supplies paid a $6 dividend last year. The dividend is expected to grow at...
Martin Office Supplies paid a $6 dividend last year. The dividend is expected to grow at a constant rate of 7 percent over the next four years. The required rate of return is 20 percent (this will also serve as the discount rate in this problem). Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Compute the anticipated value of the dividends for the next four years. (Do not...
Beasley Ball Bearings paid a $4 dividend last year. The dividend is expected to grow at...
Beasley Ball Bearings paid a $4 dividend last year. The dividend is expected to grow at a constant rate of 6 percent over the next four years. The required rate of return is 14 percent (this will also serve as the discount rate in this problem). Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Compute the anticipated value of the dividends for the next four years. (Do not...
Martin Office Supplies paid a $3 dividend last year. The dividend is expected to grow at...
Martin Office Supplies paid a $3 dividend last year. The dividend is expected to grow at a constant rate of 5 percent over the next four years. The required rate of return is 14 percent (this will also serve as the discount rate in this problem). Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Compute the anticipated value of the dividends for the next four years. (Do not...
Carla Vista, Inc., is a fast-growth company that is expected to grow at a rate of...
Carla Vista, Inc., is a fast-growth company that is expected to grow at a rate of 23 percent (per year) for the next four years. It is then expected to grow at a constant rate of 6 percent. Carla Vista’s first dividend, of $3.60, will be paid in year 3. If the required rate of return is 20 percent, what is the current value of the stock if dividends are expected to grow at the same rate as the company?...
A fast-growing firm recently paid a dividend of $0.20 per share. The dividend is expected to...
A fast-growing firm recently paid a dividend of $0.20 per share. The dividend is expected to increase at a 20 percent rate for the next four years. Afterwards, a more stable 10 percent growth rate can be assumed. If an 11.5 percent discount rate is appropriate for this stock, what is its value? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Stock value $
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT