Question

Woidtke Manufacturing's stock currently sells for $26 a share. The stock just paid a dividend of $2.00 a share (i.e., D₀ = $2.00), and the dividend is expected to grow forever at a constant rate of 3% a year. What stock price is expected 1 year from now? Do not round intermediate calculations. Round your answer to the nearest cent.

$ _____________

What is the estimated required rate of return on Woidtke's stock (assume the market is in equilibrium with the required return equal to the expected return)? Do not round intermediate calculations. Round the answer to two decimal places.

_______________ %

Answer 1

Stock price in year 1 = $ 26.78 26*1.03 Price = D1 = $26.00 2*1.03 D1/(ke-g) = $2.06 3.00% 7.92% 10.92% ke - g = required rate of return = ke = [3% + 7.92% ]