Common stock value- constant grow. McCracken Roofing, Inc., common stock paid a dividend of $1.41 per...
Common stock value- constant grow. McCracken Roofing, Inc., common stock paid a dividend of $1.41 per share last year. The company expects earnings and dividends to grow at a rate of 8% per year for the foreseeable future.
a. what required rate of return for this stock would result in a price per share of $24?
b. If McCracken expects both earnings and dividends to grow at an annual rate of 11% what required rate of return would result in a price per share of $24?
Homework Answers
a. The required rate of return is computed as shown below:
= Dividend paid (1 + growth rate) / Current stock price + growth rate
= ($ 1.41 x 1.08) / $ 24 + 0.08
= 14.35% Approximately
b. The required rate of return is computed as shown below:
= Dividend paid (1 + growth rate) / Current stock price + growth rate
= ($ 1.41 x 1.11) / $ 24 + 0.11
= 17.52% Approximately
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