A firm pays a $2.50 dividend at the end of year one (D1), has a stock...
A firm pays a $2.50 dividend at the end of year one
(D1), has a stock price of $80
(P0), and a constant growth rate (g)
of 9 percent.
a. Compute the required rate of return
(Ke). (Do not round intermediate
calculations. Input your answer as a percent rounded to 2 decimal
places.)
Indicate whether each of the following changes will increase or
decrease the required rate of return (Ke).
(Each question is separate from the others. That is, assume only
one variable changes at a time.) No actual numbers are
necessary.
b. If the dividend payment increases:
Dividend yield:
Required rate of return:
Homework Answers
1.
required rate of return=2.50/80+9%=12.1250%
2.
Dividend yield increases required rate of return increases
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