9. Alfa international paid $2.00 annual dividend on com- mon stock and promises that the dividend...

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9. Alfa international paid $2.00 annual dividend on com- mon stock and promises that the dividend will grow by 496 per year.

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Answer 1

Answer #1

Last Dividend = $2.00
Growth Rate = 4%
Current Price = $20.00

Expected Dividend = Last Dividend * (1 + Growth Rate)
Expected Dividend = $2.00 * 1.04
Expected Dividend = $2.08

Required Rate of Return = Expected Dividend / Current Price + Growth Rate
Required Rate of Return = $2.08 / $20.00 + 0.04
Required Rate of Return = 0.1040 + 0.04
Required Rate of Return = 0.1440 or 14.40%

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Answer 2

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