Question

King Waterbeds has an annual cash dividend policy that raises the dividend each year by 44​%. The most recent​ dividend, Div 0Div0​, was $ 0.50$0.50 per share. What is the​ stock's price if a. an investor wants a return of 66​%? b. an investor wants a return of 1010​%? c. an investor wants a return of 1111​%? d. an investor wants a return of 1313​%? e. an investor wants a return of 1818​%? a. What is the​ stock's price if an investor wants a return of 66​%?

Answer 1

Stock Prices expected of King Waterbeds are:

a. $8.67

b. $5.20

c. $4.73

d. $4.00

e. 2.89%

Step-by-step explanation:

Based on Kin Waterbeds Dividend Policy of 4% incremental dividend Year on Year, it implies the next dividend Pay out would be $0.52 Per unit of share.

We understand that Returns on Investment in % is the actual Returns in Dollars divided by the invested Amount in Dollars.

Thus, to determine the Amount invested (now refereed to as Stock Prices), it will be my Actual Returns in Dollars divided by my expected Returns on Investment in %

The attached workings demonstrates how we arrived at the answers a to e.