1A Columbus Manufacturings stock currently sells for 2506 a

1A. Columbus Manufacturing\'s stock currently sells for $25.06 a share. The stock just paid a dividend of $2 a share (i.e.,D₀=2). The dividend is expected to grow at a constant rate of 5% a year. What is the required rate of return on the company\'s stock? Express your answer in percentage, and round it to two decimal places, i.e., 13.54, for example for 0.1354)

1B. Columbus Pet Products has preferred stock outstanding which pays a dividend of $4 at the end of each year. The preferred stock sells for $39.73 a share. What is the preferred stock\'s required rate of return? Answer in a percentage and round it to two decimal places, i.e., 13.24 for 0.1324.

Solution

Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Amount Q1 A Ke= D1/p0+ g where D1 is dividend at the end of year = 2*1.05 2.1 P0 is price at the beginning                     25.06 g is growth rate 5.00% Ke= 2.10 / 25.06 + 5% Ke= 8.38% + 5% Ke=13.38% Q1B Preference Dividend 4 Selling price of preferred stock 39.73 preferred stock\'s required rate of return = 4 / 39.73 10.07%