LED Corporation's stock has a required rate of return of 19%, and it sells for $102 per share

Finance Oct 20, 2020

LED Corporation's stock has a required rate of return of 19%, and it sells for $102 per share. The dividend is expected to grow at a constant rate of 8% per year. What is the expected year-end dividend, D₁?

Expert Solution

Computation of Expected Year-end Dividend, D1:

Required Rate of Return = Expected Year-end Dividend / Current Stock Price + Growth Rate

19% = Expected Year-end Dividend / $102 + 8%

19%-8% = Expected Year-end Dividend / $102

11% = Expected Year-end Dividend / $102

Expected Year-end Dividend = $102 * 11% = $11.22

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