Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / Westin Corporation common stock recently paid a dividend of $2
Westin Corporation common stock recently paid a dividend of $2.10. The firm typically pays out 50% of its earnings as dividends and retains the rest for investment in the firm. Westin has a return on equity of 15 percent. If investors require a return of 12 percent, what is the intrinsic value of the firm's common stock? Assume dividends will grow at a constant rate.
| Growth rate=ROE*retention ratio |
| growth rate=15*0.5 |
| growth rate = 7.5 |
| Price = recent dividend* (1 + growth rate )/(cost of equity - growth rate) |
| Price = 2.1 * (1+0.075) / (0.12 - 0.075) |
| Price = 50.17 |
