Question

Judy’s Boutique just paid an annual dividend of $1.65 on its common stock. The firm increases...

Judy’s Boutique just paid an annual dividend of $1.65 on its common stock. The firm increases its dividend by 2.5 percent anually. What is the rate of return on this stock if the current price is $38.20 a share?
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Information provided:

Current dividend= $1.65

Dividend growth rate= 2.5%

Current stock price= $38.20

The rate of return is calculated using the dividend discount model.

It is calculated using the below formula:

Ke=D1/Po+g

Where:

D1= Next year’s dividend

Po=Current stock price

g=Firm’s growth rate

Ke= $1.65*(1 + 0.0250)/ $38.20 + 0.0250

     = $1.6913/ $38.20 + 0.0250

     = 0.0443 + 0.0250

     = 0.0693*100

     = 6.93%.

In case of any query, kindly comment on the solution.

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
Judy's Boutique just paid an annual dividend of $3.19 on its common stock. The firm increases...
Judy's Boutique just paid an annual dividend of $3.19 on its common stock. The firm increases its dividend by 3.85 percent annually. What is the company's cost of equity if the current stock price is $41.80 per share? 12.18% 11.78% 11.48% 10.84% 11.16%
A company just paid an annual dividend of $5.00 per share on its common stock. Due...
A company just paid an annual dividend of $5.00 per share on its common stock. Due to the success of a new product, the firm expects to achieve a dramatic increase in its short-term growth rate in sales to 30 percent annually for the next three years. After this time, the growth rate in sales is expected to return to the long-term constant rate of 6 percent per year. Assume that the company’s dividend growth rate matches the rate of...
XanEx is a new firm that just paid an annual dividend of $1 a share. The...
XanEx is a new firm that just paid an annual dividend of $1 a share. The firm plans to increase its dividend by 10 percent a year for the next 4 years and then decrease the growth rate to 2 percent annually. If the required rate of return is 18.25 percent, what is one share of this stock worth today?
The Jackson Company has just paid a dividend of $3.00 per share on its common stock,...
The Jackson Company has just paid a dividend of $3.00 per share on its common stock, and it expects this dividend to grow by 10 percent per year, indefinitely. The firm has a beta of 1.50; the risk-free rate is 10 percent; and the expected return on the market is 14 percent. The firm's investment bankers believe that new issues of common stock would have a flotation cost equal to 5 percent of the current market price. How much should...
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...
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...
A firm has just paid an annual dividend of $3 per share (D0) of common stock....
A firm has just paid an annual dividend of $3 per share (D0) of common stock. If the expected long?run growth rate for this firm is 10 percent, and if you require an annual rate of return of 16 percent, then how much should you be willing to pay for a share of this stock? $61 $49 $58 $35 $55 Which of the following types of compounding will cause a deposit of money to increase most rapidly? annual semi-annual quarterly...
(8 marks) Alberto Inc. just paid its annual dividend of $2.00 per share. The firm is...
Alberto Inc. just paid its annual dividend of $2.00 per share. The firm is expected to grow at a rate of 10 percent for the next two years and then at 6 percent per year thereafter. The required return of Alberto Inc. is 12%. Find the expected price of the stock in one year, P ̂_1.
Musical Charts just paid an annual dividend of $1.84 per share. This dividend is expected to...
Musical Charts just paid an annual dividend of $1.84 per share. This dividend is expected to increase by 2.1 percent annually. Currently, the firm has a beta of 1.12 and a stock price of $31 a share. The risk-free rate is 4.3 percent and the market rate of return is 13.2 percent. What is the cost of equity capital for this firm?
The current dividend yield on Chrysler’s common stock is 2.8 percent. The company just paid a...
The current dividend yield on Chrysler’s common stock is 2.8 percent. The company just paid a $1.48 annual dividend and announced plans to pay $1.54 next year. The dividend growth rate is expected to remain constant at the current level. What is the required rate of return on this stock?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT