Question

The investment dealer of Saskatchewan Cloud Inc. uses a dividend valuation model to appraise the shares of Lambert Aerospace Company. Dividends (D1) at the end of the current year will be $1.20. The growth rate (g) is 10 percent and the discount rate (Ke) is 14 percent. (Round the intermediate calculations and the final answer to 2 decimal places.)

a. What should be the price of the stock to the public? Price of the stock $

b. If there is a 6 percent total underwriting spread on the stock, how much will the issuing corporation receive? Net price to the corporation $

c. If the issuing corporation requires a net price of $ 28.50 (proceeds to the corporation) and there is a 6 percent underwriting spread, what should be the price of the stock to the public? Price of the stock to the public $

Answer 1

Solution Given Data Dividends DJ at the end of the current will be $ 120 a) Growth rate is 10%. discount rate is 14%. price of stock in public → stock can be calculated by following egn peg where pa price of share at year-o DI upcoming dividend (year-Ilies $1.20 ke cost of equality i.e, lox. 14%. g growth rate i.c; loy.. Putting the values

1.20 014-0:10 1.20 D 20 004 -> P: $30 Price of stock in public : 430 b) underwriting spread stock (W) = 61. - then issuing corporation will be P = (-u) 24(1-0.06) 24 (0.94) $22.56 ring corporation will recieve $22.56 Der Share Issuing requires 28.50$ under writing spread 6% Net price - Pll-ug » P: Net Price 1-4 28.50 10.06 28.50 0.94 => P = $30 share price to public $25