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Boehm Incorporated is expected to pay a $2
Boehm Incorporated is expected to pay a $2.00 per share dividend at the end of this year (i.e., D1 = $2.00). The dividend is expected to grow at a constant rate of 6% a year. The required rate of return on the stock, rs, is 17%. What is the estimated value per share of Boehm's stock? Round your answer to the nearest cent.
3. Woidtke Manufacturing's stock currently sells for $27 a share. The stock just paid a dividend of $3.25 a share (i.e., D0 = $3.25), and the dividend is expected to grow forever at a constant rate of 8% a year. What stock price is expected 1 year from now? Round your answer to the nearest cent.
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What is the estimated required rate of return on Woidtke's stock? Round the answer to three decimal places.
4. Nick's Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $5 at the end of each year. The preferred sells for $55 a share. What is the stock's required rate of return (assume the market is in equilibrium with the required return equal to the expected return)? Round the answer to two decimal places.
Expert Solution
Current price=D1/(Required return-Growth rate)
=2/(0.17-0.06)
=$18.18(Approx)
3.Expected price=Current price*(1+Growth rate)
=27*1.08
=$29.16
Required return=(D1/Current price)+Growth rate
=[(3.25*1.08)/27]+0.08
=(3.51/27)+0.08
=21%
4.Required rate of return=Annual dividend/Current value
=5/55
=9.09%(Approx)
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