Determine the price of the security: A share of stock that pays a current dividend of...
Determine the price of the security:
A share of stock that pays a current dividend of $2.94. The return on equity is 11.2% and total earnings for the past year is $6.29. Shareholders required rate of return is 12.6%.
Homework Answers
Dividend payout ratio = DPS/EPS = 2.94/6.29
=0.4674
| Growth rate=ROE*(1-payout ratio) |
| growth rate=11.2*(1-0.4674) |
| growth rate = 5.97 |
| Price = recent dividend* (1 + growth rate )/(cost of equity - growth rate) |
| Price = 2.94 * (1+0.0597) / (0.126 - 0.0597) |
| Price = 46.99 |
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