Question

Seitz Glassware is trying to determine its growth rate for an annual cash dividend. The most recent? dividend, Div 0?, was $ 0.60 per share. The? stock's target return rate is 11?%. What is the? stock's price if

a. the annual growth rate is 2?%?

b. the annual growth rate is 4?%?

c. the annual growth rate is 7?%?

d. the annual growth rate is 8?%?

e. the annual growth rate is 10?%?

Answer 1

This question requires an application of constant growth dividend discount model, according to which value of shares today, V₀ is mathematically represented as:

r = 11%

a. the annual growth rate is 2?%

D₁ = D₀ * (1 + g) = 0.60 * (1 + 2%) = 0.612

V₀ = $6.8

b. the annual growth rate is 4?%

D₁ = D₀ * (1 + g) = 0.60 * (1 + 4%) = 0.624

V₀ = $8.91

c. the annual growth rate is 7?%

D₁ = D₀ * (1 + g) = 0.60 * (1 + 7%) = 0.642

V₀ = $16.05

d. the annual growth rate is 8?%

D₁ = D₀ * (1 + g) = 0.60 * (1 + 8%) = 0.648

V₀ = $21.6

e. the annual growth rate is 10?%

D₁ = D₀ * (1 + g) = 0.60 * (1 + 10%) = 0.66

V₀ = $66