Hubbard Industries just paid a common dividend D0 of 110 It

Hubbard Industries just paid a common dividend, D0, of $1.10. It expects to grow at a constant rate of 2% per year. If investors require a 12% return on equity, what is the current price of Hubbard\'s common stock? Round your answer to the nearest cent. Do not round intermediate calculations.
$ per share

Carlysle Corporation has perpetual preferred stock outstanding that pays a constant annual dividend of $1.20 at the end of each year. If investors require an 7% return on the preferred stock, what is the price of the firm\'s perpetual preferred stock? Round your answer to the nearest cent. Do not round intermediate calculations.
$ per share

Assume today is December 31, 2013. Imagine Works Inc. just paid a dividend of $1.15 per share at the end of 2013. The dividend is expected to grow at 15% per year for 3 years, after which time it is expected to grow at a constant rate of 5.5% annually. The company\'s cost of equity (rs) is 9%. Using the dividend growth model (allowing for nonconstant growth), what should be the price of the company\'s stock today (December 31, 2013)? Round your answer to the nearest cent. Do not round intermediate calculations.
$ per share

Solution

1.

Current price=D1/(Required return-Growth rate)

(1.1*1.02)/(0.12-0.02)

=$11.22

2.

Price of perpetual preferred stock=Annual dividend/Required return

=($1.20/0.07)

=$17.14(Approx).

3.

D1=(1.15*1.15)=$1.3225

D2=(1.3225*1.15)=$1.520875

D3=(1.520875*1.15)=$1.74900625

Value after year 3=(D3*Growth rate)/(Cost of equity-Growth rate)

=(1.74900625*1.055)/(0.09-0.055)

=$52.72004554

Hence current price=Future dividends*Present value of discounting factor(9%,time period)

=$1.3225/1.09+$1.520875/1.09^2+$1.74900625/1.09^3+$52.72004554/1.09^3

which is equal to

=$44.55(Approx).