Homework Chapter 8 Graded Homework Save Score 0 of 1 pt 10 o

Homework: Chapter 8 Graded Homework Save Score: 0 of 1 pt 10 of 18 (0 complete) ? Hw Score: 0%, 0 of 18 pts Problem 8.LO3.10 (similar to) E Question Help Carlson Enterprises\' common stock dividend is expected to grow at 2% per year. The dividend recently paid was $0.28 per share, and the required return is 9%. a. What is the estimated value of the common stock? b. If the value of a common stock was S96 per share and dividends were recently $242, but expected to grow at 3% per year, what would be the required rate of return? a. What is the estimated value of the common stock? The value is s (Round to the nearest cont)

Solution

1a)Price =D0(1+g)/(Rs-g)

      = .28(1+.02)/(.09-.02)

      = .28*1.02 / .07

      = $ 4.08 per share

b)Require return = [D0(1+g)/price] +g

           =[2.42(1+.03) /96] +.03

            =[2.42*1.03/96 ] +.03

           = .0260+.03

             = .0560 or 5.60%

2)value of stock = D0(1+g)/(Rs-g)

      =2(1+.06_/(.15-.06)

        =2*1.06 / .09

        = $ 23.56

3)D1= 1.97 (1+.07)= 2.11

D2= 2.11 (1+.07)= 2.26

D3 = 2.26 (1+.07 )= 2.42