Toronto Skates Inc. is paying dividends on a regular basis with a constant growth rate. The...
Toronto Skates Inc. is paying dividends on a regular basis with a constant growth rate. The dividend last year was $ 1.00 and this year is $1.25. If the required rate of return is 12%, what is the price of the stock?
|
A |
$10.42 |
|
B |
$8.33 |
|
C |
5.00 |
|
D |
Cannot be calculated |
Homework Answers
Answer:
Last Year’s Dividend = $1.00
Current year’s Dividend = $1.25
Growth Rate = ($1.25 - $1.00) / $1.00 * 100
Growth Rate = 25%
Expected Dividend = $1.25 * (1 + 0.25)
Expected Dividend = $1.5625
Required Return = 12%
The price of the stock cannot be calculated, as Growth rate is more than required return and in Dividend Growth model the growth rate should be less than the required return.
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