McKenna Motors is expected to pay a $1.00 per share dividend at the end of the year.  The stock sells for $20.00 per share and its required rate of return is 11 percent.  The dividend is expected to grow at a constant rate, g, forever.  What is the growth rate, g, for this stock?

(2) A share of common stock has just paid a dividend of $2.00.  If the expected long-run growth rate for this stock is 15 percent, and if investors require a 19 percent rate of return, what is the price of the stock?

 

(3) If D₀ = $2.00, g = 6% and P₀ = $40, what is the stock's expected total return (r_s) for the coming year?

 

(4) Walker, Inc. plans to issue preferred stock with a perpetual annual dividend of $2 per share and a par value of $25.  If the required return (r_p) on this stock is currently 8%, what should be the stock's market value (v_p)?

 

(5) Dave's Inc's stock currently sells for $45 (P₀) per share.  The stock's dividend is projected to increase at a constant rate of 4% (g) per year.  The required rate of return on the stock is 12% (r_s).  What is Dave's expected price six years from now (P₆) ?

Answer rating: 100% (QA)

SOLUTION 1 We can use the dividend discount model to calculate the growth rate g P0 D1 r g where P0 is the current stock price D1 is the expected divi... View the full answer