Question

Tresnan Brothers is expected to pay a $2.20 per share dividend at the end of the year (i.e., D =$2.20). The dividend is expected to grow at a constant rate of 10% a year.The required rate of return on the stock, r s,1517%. What is the stock's current value per share? Round your answer to two decimal places. A stock is expected to pay a dividend of $2.50 at the end of the year (i.e D =$2.50), and it should continue to grow at a constant rate of 6% a year If its required return is 13\%, what is the stock's expected price 1 year from today? Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

The current value per share of Tresnan Brothers stock is $42.47. The expected price 1 year from today is $35.71.

Step-by-step explanation:

To calculate the value per share of Tresnan Brothers stock, we can use the constant growth formula. The formula is: P = D / (r - g), where P is the stock's current value per share, D is the dividend expected to be paid at the end of the year, r is the required rate of return, and g is the growth rate of the dividend.

Using the given values, we have: P = $2.20 / (0.1517 - 0.10) = $2.20 / 0.0517 = $42.47.

Therefore, the stock's current value per share is $42.47.

To calculate the stock's expected price 1 year from today, we can use the constant growth formula again. The formula is: P1 = D1 / (r - g), where P1 is the stock's expected price 1 year from today, D1 is the dividend expected to be paid at that time, and all other values remain the same.

Using the given values, we have: P1 = $2.50 / (0.13 - 0.06) = $2.50 / 0.07 = $35.71.

Therefore, the stock's expected price 1 year from today is $35.71.