Question

​(Common stock valuation​) The common stock of NCP paid ​$2.25 in dividends last year. Dividends are expected to grow at an annual rate of 5.50 percent for an indefinite number of years.

a. If​ NCP's current market price is ​$22.72 per​ share, what is the​ stock's expected rate of​ return?

b. If your required rate of return is 7.5 ​percent, what is the value of the stock for​ you?

c. Should you make the​ investment?

a. If​ NCP's current market price is ​$22.72 per​ share, the​ stock's expected rate of return is 15.95​%. ​(Round to two decimal​ places.)

b. If your required rate of return is 7.5 ​percent, the value of the stock would be ​$ 118.69. ​(Round to the nearest​ cent.)

c. You should... ▼ buy or sell ...the stock because the expected rate of return is... ▼ less than or greate.... than your required rate of return or the value of the stock is... ▼ larger than or smaller than ....the current market price.

Answer 1

The answer is as follows:

Please note that calculations for your part (a) and port (b) is correct. Answer to part (c): c. You should buy the stock because the expected rate of veteran is greater than rate return or the value of the stock is larger than the current market price your required of OY