Investors require a 6% rate of return on Levine Company's stock (i.e., rs = 6%). What...
Investors require a 6% rate of return on Levine Company's stock (i.e., rs = 6%).
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What is its value if the previous dividend was D0 = $2.50 and investors expect dividends to grow at a constant annual rate of (1) -3%, (2) 0%, (3) 4%, or (4) 5%? Do not round intermediate calculations. Round your answers to the nearest cent.
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$ =
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Homework Answers
Current price=D1/(Required return-Growth rate)
a.Current price=(2.5*(1-0.03)/(0.06-(0.03))
=(2.425/0.09)=$26.94(Approx).
b.Current price=2.5/0.06=$41.67(Approx).
c.Current price=(2.5*1.04)/(0.06-0.04)=$130
d.Current price=(2.5*1.05)/(0.06-0.05)=$262.5
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Investors require a 6% rate of return on Levine Company's stock
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