Question

Anderson​ Motors, Inc. has just set the company dividend policy at

​$0.45

per year. The company plans to be in business forever. What is the price of this stock if

a.  an investor wants a return of

5​%?

b.  an investor wants a return of

8​%?

c.  an investor wants a return of

9​%?

d.  an investor wants a return of

12%?

e.  an investor wants a return of

17​%?

Dietterich Electronics wants its shareholders to earn a return of

14%

on their investment in the company. At what price would the stock need to be priced today if Dietterich Electronics had a

a.  

​$0.30

constant annual dividend​ forever?

b.  

​$1.20

constant annual dividend​ forever?

c.  

​$1.70

constant annual dividend​ forever?

d.  

​$2.60

constant annual dividend​ forever?

Answer 1

Solution ) . Anderson Motors Inc Dividend (set by the company) - $0.45 a) if investor wants retion of 5% So, Required Rate of Retuon - 54. Or 0.05 Price of stock = Dividend requiredrate of return $0.45 0.05 $ 9 per share $ape (6) Investor wants return of 8% So, Required Rate of Return = 8% of 0.08 1. Price of stock - Dividend required Mate of retuon = $0.45 $5,625 per Share 0.08 (C) Investor wants return of 94. Required Rate of Return = 94 or 0.09 Price = Dividend Required Rate of Return : : 5 peythorn $ 0,45 0,09

d) investor wants a return 7 1207. so required rate of return (9) = 12 to or 0.12 Price = Dividend reqdmate of return = $0,45 0.13 = $3.75 per share (C) investor wants a return of 17.1. so required rate of return (e) = 17% or 0.17 Price = Dividend required rate of return - $0,45 0,17 = $ 2.64705882352 Dr $2.65 per Share Capprox) DIETTRICH ELECTRONICS orooly Required Rate of Return = 14% (by shareholders) we have to calculate price of stock by using the formula

Price = Dividend Required Rate of Return (9) if the company had constant of $ 0,30 dividend policy Price $0,30 only = $ 2.1428571428 or $2.143 per Share Capbrax) 1. b) Dividend of $1.20 So, Price = $1.20 0.14 - $8.57142857142 or $8.571 pere Share (approx) (C) Dividend of $ 1070 So, Price = $1.70 0.14 (d) 428571428 or $12.143 per shore (approx) Dividend of $2.60 So, pokee = $2.60 0.14 = $18.5714285714 Oz $18.571 per share (approx)