Question

A stock is presently trading for $52. It just paid a $5 annual dividend and investors...

A stock is presently trading for $52. It just paid a $5 annual dividend and investors require a %14 return on this stock. The company is about to make a surprise announcement that will cause its growth rate to immediately double. Based on the Dividend Growth Model, what will be the stock price immediately following the announcement?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Value of Stock =

52 =

7.28 - 52G = 5 + 5G

7.28 - 5 = 5G + 52G

2.28 = 57G

G = 2.28 / 57  

G = 4%

Grwoth Rate doubles

G = 4% * 2

G = 8%

Value of Stock =

= 5.4 / 0.06

= $ 90

Value of Stock will be $ 90

NOTE: The answer to your question has been given below/above. If there is any query regarding the answer, please ask in the comment section. If you find the answer helpful, do upvote. Help us help you.

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
farmer’s market inc. just paid an annual dividend of $5 on its stock. the growth rate...
farmer’s market inc. just paid an annual dividend of $5 on its stock. the growth rate in ... Your question has been answered Let us know if you got a helpful answer. Rate this answer Question: Farmer’s Market Inc. just paid an annual dividend of $5 on its stock. The growth rate in divide... Farmer’s Market Inc. just paid an annual dividend of $5 on its stock. The growth rate in dividends is expected to be a constant 5% per...
Dani's just paid an annual dividend of $6 per share. What is the dividend expected to...
Dani's just paid an annual dividend of $6 per share. What is the dividend expected to be in five years if the growth rate is 4.2%? $7.07 $7.37 $7.14 $7.44 2. The dividend discount model states that today's stock price equals the present value of all expected future dividends. true false 3. ABC's current dividend is $5 and has an annual growth rate of 6%. What would be the current price of a share of ABC stock if investors require...
1) A stock just paid a dividend of $0.50. If the dividend is expected to grow...
1) A stock just paid a dividend of $0.50. If the dividend is expected to grow 3% per year, what will the price be if the required return is 9%? 2) A stock is expected to pay a dividend of $1 at the end of the year. The required rate of return is 11%, and the expected growth rate is 5%. What is the current stock price? 3) A stock just paid a dividend of $1. The required rate of...
Maroon Inc. just paid a $1.57 dividend and investors expect that dividend to grow by 5%...
Maroon Inc. just paid a $1.57 dividend and investors expect that dividend to grow by 5% each year forever. If the required return on the stock investments is 14%, what should be the price of the stock in 4 years?
Co. just paid a dividend of $1.30 on each share of its stock. The company expects...
Co. just paid a dividend of $1.30 on each share of its stock. The company expects that the dividends will increase at a constant rate of 4 percent per year in perpetuity. Investors require a 14 percent return on this company's stock. Calculate the current stock price. Calculate the stock price in three years. Calculate the stock price in 12 years.
A stock just paid an annual dividend of $9.53 per share. The expected growth rate of...
A stock just paid an annual dividend of $9.53 per share. The expected growth rate of the dividend is 5.38%. The required rate of return for the stock is 8.88% per annum. Based on the Constant Dividend Growth Model, what is the expected dividend yield for the stock for the coming year? Answer as a percentage, 2 decimal places (e.g., 12.34% as 12.34).
SCI just paid a dividend ( D0 ) of $3.12 per share, and its annual dividend...
SCI just paid a dividend ( D0 ) of $3.12 per share, and its annual dividend is expected to grow at a constant rate (g) of 6.50% per year. If the required return ( rs ) on SCI’s stock is 16.25%, then the intrinsic value of SCI’s shares is per share. Which of the following statements is true about the constant growth model? The constant growth model can be used if a stock’s expected constant growth rate is less than...
Stock problem. A stock just reported earnings of $5.00 per share and just paid a dividend...
Stock problem. A stock just reported earnings of $5.00 per share and just paid a dividend of $2.6 per share. Investors require a 11% return to invest in this company, and the company makes a return of 8% on investments. Find the PVGO. Keep 4 decimals in your growth rate calculations (for example, 10.12%), and then round your answer to 2 decimal places.
Hubbard Industries just paid a common dividend, D0, of $1.20. It expects to grow at a...
Hubbard Industries just paid a common dividend, D0, of $1.20. It expects to grow at a constant rate of 2% per year. If investors require a 12% return on equity, what is the current price of Hubbard's common stock? Carlysle Corporation has perpetual preferred stock outstanding that pays a constant annual dividend of $1.30 at the end of each year. If investors require an 6% return on the preferred stock, what is the price of the firm's perpetual preferred stock?...
This morning you purchased a stock that just paid an annual dividend of $4.00 per share....
This morning you purchased a stock that just paid an annual dividend of $4.00 per share. You require a return of 11.4 percent and the dividend will increase at an annual growth rate of 3.3 percent. If you sell this stock in three years, what will your capital gain be?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT