Question

Dietterich Electronics wants its shareholders to earn a return of 15​% on their investment in the company. At what price would the stock need to be priced today if Dietterich Electronics had a a. ​$0.25 constant annual dividend​ forever? b. ​$1.00 constant annual dividend​ forever? c. ​$1.75 constant annual dividend​ forever? d. ​$2.50 constant annual dividend​ forever? a. The value of the stock for an investor who wants a return of 15​% with a constant annual dividend of ​$0.25 forever​ is:

Answer 1

(a) price stock need = $1.667

(b) price stock need = $6.667

(c) price stock need = $11.667

(d) price stock need = $16.667

Step-by-step explanation:

given data

return = 15​% = 0.15

to find out

what price would the stock need to be priced today

a. ​$0.25 constant annual dividend​ forever?

b. ​$1.00 constant annual dividend​ forever?

c. ​$1.75 constant annual dividend​ forever?

d. ​$2.50 constant annual dividend​ forever ?

solution

(a) price stock need =
`(0.25)/(0.15)`

(a) price stock need = $1.667

(b) price stock need =
`(1.00)/(0.15)`

(b) price stock need = $6.667

(c) price stock need =
`(1.75)/(0.15)`

(c) price stock need = $11.667

(d) price stock need =
`(2.50)/(0.15)`

(d) price stock need = $16.667