Question

Financial analysts forecast Safeco Corporation (SAF) growth for the future to be a constant 8 percent. Safeco's recent dividend was $0.88. What is the value of Safeco stock when the required return is 12 percent?

Answer 1

23.76

Step-by-step explanation:

Constant growth model

P°= D° (1+g)/1-g

= 0.88(1+0.08)/0.12-0.08

=0.88×1.08/0.04

=0.9504/0.04

=23.76

Therefore the value of Safeco stock when the required return is 12 percent is 23.76

Answer 2

23.76

Step-by-step explanation:

Steps Taken

The growth for the future for Safeco Corporation =8%

Sefaco's recent dividend is=$0.88

Now, the value of Sefeco stock when the required return is 12% is given below

The Constant Model Growth is,

Po = Do (1 + g) / i-g

0.88 (1+0.08) / 0.12 - 0.8 =23.76