Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
1) Harrison Clothiers’ stock currently sells for $109 a share
1) Harrison Clothiers’ stock currently sells for $109 a share. It just paid a dividend of $1 a share. The dividend is expected to grow at a constant rate of 6% a year. What is the required rate of return? What stock price is expected 1 year from now?
2) Fee Founders has perpetual preferred stock outstanding that sells for $149 a share and pays a dividend of $5 at the end of each year. What is the required rate of return?
Expert Solution
1. D1=D0*(1+growth rate)=1*(1+6%)=1.06
required rate of return=(D1/Share price)+growth rate=(1.06/109)+6%=0.97%+6%=6.97%
Expected stock price in year1=D2/(required rate of return-growth rate)
D2=D1*(1+6%)=1.06*(1+6%)=1.1236
Expected stock price in year1=1.1236/(6.97%-6%)=115.54
2. required rate of return on preferred stock=annual dividend/preferred share price=5/149=3.36%
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
