1 O eztomheducationcomhmtpx connect FINANCE Quiz Question 13

1 O ezto.mheducation.com/hm.tpx connect FINANCE Quiz Question 13 (of 15) value: 3.00 points P8-9 Stock Valuation and Required Return [L01] Red, Inc.,. Yellow Corp., and Blue Company each will pay a dividend of $2.70 next year. The growth rate i dividends for all three companies is 4 percent. The required returm for each company\'s stock is 8.50 percent, 11.30 percent, and 14.10 percent, respectively Required (a) What is the stock price for Red. Inc., Company? $60.00 (b) What is the stock price for Yellow Corp. Company? 23.89 (c) What is the stock price for Blue Company? $26.73 References Worksheet P8-9 Stock Valuation and Required Returm 6

Solution

Price= Divident next year/Req Return-Growth rate

Red co.= 2.7/(8.5%-4%)

= $60

Yellow Co= 2.7/(11.3%-4%)

= $36.986

Blue co.= $2.7/(14.1%-4%)

= $26.73