Ask Question
3 November, 20:51

Connolly Co.'s expected year-end dividend is D1 = $1.60, its required return is rs = 11.00%, its dividend yield is 6.00%, and its growth rate is expected to be constant in the future. What is Connolly's expected stock price in 7 years, i. e., what is? a. $37.52b. $39.40c. $41.37d. $43.44e. $45.61

+4
Answers (1)
  1. 3 November, 22:30
    0
    What is Connolly's expected stock price in 7 years, i. e., what is?

    a. $37.52

    Explanation:

    Required rate of return it's equal to capital gains growths plus dividend yield

    Then 11% = capital gains + 6%, so the capital gains it's equal to 5%.

    First we need to find the stock price today with the information available about the value of the dividend:

    P0 = Div / (r-g) = $1,6 / (0,11-0,05) = $26,67

    This is the stock price today of the cash flow of dividend a growth rate of 5%

    To know the price at the year 7, it's necessary to find the future value applying the growth rate of 5%.

    P7 = P0 (1+r) ^7 = $26,67 * (1,05) ^7 = $37,52
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Connolly Co.'s expected year-end dividend is D1 = $1.60, its required return is rs = 11.00%, its dividend yield is 6.00%, and its growth ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers