Question

eBook Constant Growth Valuation Woidtke Manufacturing's stock currently sells for $15 a share. The stock just paid a dividend of $1.00 a share (i.e., Do - $1.00), and the dividend is expected to grow forever at a constant rate of 10% 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 Widtke's stock? Do not round intermediate calculations. Round the answer to two decimal places. (Assume the market is in equilibrium with the required return equal to the expected return.)

Answer 1

1)

Stock price in 1 year:

= $15*(1+10%)

= $16.50

Required return D1:PO+g Here, 15 Net stock price (PO) Expected dividend (D1) Growth rate (g) $ =1*(1+10%) 1.1 10% Required return 17.33% 1.1:15+10%

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