eztomheducationcomhmtpx connect FINANCE iz Question 8 of 15

? ezto.mheducation.com/hm.tpx connect FINANCE iz Question 8 (of 15) value: 3.00 points Problem 8-9 Stock Valuation and Required Return [LO1] Red, Inc., Yellow Corp., and Blue Company each will pay a dividend of $2.55 next year. The growth rate in dividends for all three companies is 3 percent. The required return for each company\'s stock is 5 percent, 8 percent, and 11 percent, respectively. What is the stock price for each company? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Stock price Red, Inc. Yellow Corp Blue Company 50.00 20.00 29.00 References Worksheet Problem 8-9 Stock Valuation and R Retum [L01 Previcus attempt

Solution

Using dividend growth model - Price of a stock today (P0) = D1(Dividend for next period)/(Required return - growth rate) i.e. P0 = D1/(Re-g) Red Yellow Blue D1 = 2.55 2.55 2.55 Re = 5% 8% 11% G = 3% 3% 3% Po = 127.5 51 31.875