You are considering buying common stock in Grow On, Inc. You have projected that the next...
You are considering buying common stock in Grow On, Inc. You have projected that the next dividend the company will pay will equal $5.10 and that dividends will grow at a rate of 9.0% per year thereafter. If you would want an annual return of 16.0% to invest in this stock, what is the most you should pay for the stock now?
Question 22 options:
|
$79.41 |
|
|
$72.86 |
|
|
$31.88 |
|
|
$34.74 |
|
|
$79.60 |
Homework Answers
Ans $72.86
| P0 = | Price of Share |
| D1 = | Current Dividend |
| Ke = | Cost of Equity |
| g = | growth rate |
| P0 = | D1 / (Ke - g) |
| P0 = | 5.10 / (16%- 9%) |
| P0 = | 72.86 |
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