Question

Hirshfeld Corporation's stock has a required rate of return of 10.25%, and it sells for $57.50 per share. The dividend is expected to grow at a constant rate of 6.00% per year. What is the expected year-end dividend, D1?a. $2.20b. $2.44c. $2.69d. $2.96e. $3.25

Answer 1

Expected dividend will be $2.44

So option (b) will be correct option

Step-by-step explanation:

We have given required rate of return = 10.25 % = 0.1025

Value of stock= $57.50

Growth rate = 6 % = 0.06

We have to find the expected dividend

We know that cost of stock is given by

`cost\ of\ stock=(D_1)/(r_s-g)`, here
`D_1` is expected dividend
`r_s` is return ratio and g is growth rate

So
`57.50=(D_1)/(0.1025-0.06)`

`D_1=$2.44`

So option (b) will be correct option