Question

5. Red Sun Rising just paid a dividend of $2.22 per share. The company said that it will increase the dividend by 20 percent and 15 over the next two years, respectively. After that, the company is expected to increase its annual dividend at 3.8 percent. If the required return is 10.8 percent, what is the stock price today?

7.Fowler is expected to pay a dividend of $1.65 one year from today and $1.80 two years from today. The company has a dividend payout ratio of 25 percent and the PE ratio is 18.15 times. If the required return on the company's stock is 11.1 percent, what is the current stock price?

Answer 1

Year Div at year 1 Div at year 2 Price at year 2 Dividend $2.66 $3.06 $45.43 present value factor of 10.8% 2.22*1.2 0.90253 2.66*1.15 0.81456 (3.06*1.038)/(0.108-0.038) 0.81456 Price of the stock today calculation 1:1.108 0.9025 - 1.108 Present value ( cash flows x present value factor| $2.40 $2.50 $37.00 $41.90