Mike works for a prominent technology company. His company just paid a $1.50 dividend per share....

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Question

Mike works for a prominent technology company. His company just paid a $1.50 dividend per share....

Mike works for a prominent technology company. His company just paid a $1.50 dividend per share. The required return for his company’s stock is 12%.

(Input all answers as positive values, no commas, with no symbols ex. no $ or %. Input all % answers as whole numbers without symbols ex. 10.03 for .1003. Input all final answers two decimal places out.)

22. Mike’s company has decided to increase the company’s dividend by 6% forever, on an annual basis starting with the next dividend. If this is the case, what will the value of the dividend be in year 8? (Hint: D0=$1.50; g=6%)

Given the growth information from problem 22 and the required rate of return of 12%, what is the price of the stock today? (Hint: Constant Dividend Growth Stock; D0=$1.50)

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Answer 1

Answer #1

D0 = $1.50

Growth Rate = 6%

D8 = 1.50(1.06)8 = $2.39

Using Constant Growth Model,

Stock Price = 1.50(1.06)/(0.12 - 0.06)

Stock Price = $26.50

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Answer 2

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Mike works for a prominent technology company. His company just paid a $1.50 dividend per share....

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