Question

Compute K_e and K_n under the following circumstances:

a. D₁ = $6.60, P₀ = $76, g = 6%, F = $4.00. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
K_e

K_n

b. D₁ = $.35, P₀ = $36, g = 10%, F = $1.50. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
  

K_e

K_n

c. E₁ (earnings at the end of period one) = $10, payout ratio equals 25 percent, P₀ = $40, g = 9.0%, F = $2.50. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
  

K_e

K_n

d. D₀ (dividend at the beginning of the first period) = $9, growth rate for dividends and earnings (g) = 2%, P₀ = $66, F = $6. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
  

K_e

K_n

Answer 1

a. Ke = D1/ pO + g

= $6.6/ $76 + 0.06

=14.68%

Kn = D1/(po - f) + g

= $6.6/ (76-4 ) + 0.06

=6.6/ 72 + 0.06

=15.17%

b. D1/Po + g

Ke =0.35/ 36 + 0.10

Ke = 10.97%

Now, Kn = D1/(Po - f) + g

=0.35/(36 - 1.5) + 0.06

=7.01% (rounded off to two decimal places)

c. E1 =$10,

dividend payout = 25%

D1 = $2.5
Ke = D1/PO + G

=$2.5/$40 + 0.09

=15.25%

Kn = D1/(Po - f) + g

$2.5/(40-2.5) + 0.09

=15.67% (rounded off to two decimal places)

D. Ke = D1/po + g

= 9*1.02/66 + 0.02

=15.91% (rounded off to two decimal places)

Kn = D1/(Po - f) + g

= $9.18/ (66-6) + 0.02

=17.3%