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Ecology Labs Inc. will pay a dividend of $5.30 per share in the next 12 months (D1). The required rate of return (Ke) is 19 p

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Answer #1

a)

Price of common stock = D1 / required rate - growth rate

Price of common stock = 5.3 / 0.19 - 0.08

Price of common stock = 5.3 / 0.11

Price of common stock = $48.18

b)

Price of common stock = D1 / required rate - growth rate

Price of common stock = 5.3 / 0.23 - 0.08

Price of common stock = 5.3 / 0.15

Price of common stock = $35.33

c)

Price of common stock = D1 / required rate - growth rate

Price of common stock = 5.3 / 0.19 - 0.13

Price of common stock = 5.3 / 0.06

Price of common stock = $88.33

d)

Price of common stock = D1 / required rate - growth rate

Price of common stock = 7 / 0.19 - 0.08

Price of common stock = 7 / 0.11

Price of common stock = $63.64

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