Question

# 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?

Assume today is December 31, 2013. Imagine Works Inc. just paid a dividend of \$1.30 per share at the end of 2013. The dividend is expected to grow at 18% per year for 3 years, after which time it is expected to grow at a constant rate of 6% annually. The company's cost of equity (rs) is 9%. Using the dividend growth model (allowing for nonconstant growth), what should be the price of the company's stock today (December 31, 2013)?

Hubbard stock value = Dividend next period/(required return - growth rate)
=1.20*1.02/(0.12-0.02)
=\$12.24

Carlysle
Preferred value = Cash flow/required return
=1.30/0.06
=\$21.67

 Year Div 1 \$    1.534 \$    1.534 0.917431 \$    1.407 2 \$    1.810 \$    1.810 0.84168 \$    1.524 3 \$    2.136 \$ 75.470 \$ 77.606 0.772183 \$ 59.926 4 \$    2.264 \$    2.264 Share price0 \$    62.86