1A FIA Industries just paid a dividend of 35 a share ie D0

1A. FIA Industries just paid a dividend of $3.5 a share (i.e., D₀ = 3.5 ). The dividend is expected to grow 5% a year forever. What is the expected dividend per share for year 7 (i.e., D ₇ )? Round your answers to two decimal places.

1B. The company\'s stock has a beta equal to 1.46, the risk-free rate is 4.5 percent, and the market risk premium is 5.2 percent. What is your estimate of the stock\'s required rate of return? Answer in a percentage without the % sign, and round it to two decimal places, i.e., 10.54 for 10.54% (or 0.1054).

Solution

Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Amount Q1 A Dividend Just paid , D0                       3.50 Growth rate , g 5% dividend per share for year 7 (i.e., D 7 ) = 3.5*(1.05)^7                       4.92 Q1B Beta, B 1.46 Market Risk premium, MRP 5.20% Risk Free Rate, Rf 4.50% Ke = Rf+ B(MRP) Ke = 4.5% + 1.46(5.2%) Ke = 4.5% + 7.59% Ke = 12.09%