Ask Question
BusinessBusiness
18 October, 06:15

IPI Research's common stock is currently selling for $45/share. Their most recent dividend (annual) was $2.50, and is expected to grow at 5% per year indefinitely. What is IPI's cost of retained earnings? 10.56% 10.83% 12.14% 13.00% 17.14%

+1
Answers (1)
  1. 18 October, 07:54
    0
    The cost of retained earnings is 10.83%

    Explanation:

    The constant growth model assumes that the dividends grow at a constant rate indefinitely and the DCF approach is used to calculate the price of a stock that has constant dividend growth.

    The formula to calculate the Price of such a stock today using the constant growth model is,

    P0 = D0 * (1+g) / r - g

    We will plug in the values that are known to calculate the required rate of return on such a stock.

    45 = 2.5 * (1+0.05) / r - 0.05

    45 * (r - 0.05) = 2.625

    45r - 2.25 = 2.625

    45r = 2.625 + 2.25

    r = 4.875 / 45

    r = 0.1083 or 10.83%
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “IPI Research's common stock is currently selling for $45/share. Their most recent dividend (annual) was $2.50, and is expected to grow at ...” 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
You Might be Interested in
Your company rents computers to local businesses and schools. You have 3,000 computers with a book value of $177,500.
Answers (1)
The cross-price elasticity of demand measures the absolute change in the quantity demanded of one good divided by the absolute change in the price of another good.
Answers (1)
On December 1, 2017, AwakeAllNight Inc. sells 5,000 super caffeinated candy bars to Campus Grocers. The candy bars sell for $3 per bar.
Answers (2)
On April 1, Pujols, Inc., exchanges $590,000 fair-value consideration for 70 percent of the outstanding stock of Ramirez Corporation. The remaining 30 percent of the outstanding shares continued to trade at a collective fair value of $234,300.
Answers (1)
What are the primary differences between a data warehouse and a data mart? a. Data warehouses make quick decisions, data marts make slow decisions b. Data warehouse tackle ethical issues, data marts tackle hypothetical issues c.
Answers (1)
New Questions in Business
In year 1, the Consumer Price Index was 120 and the average nominal income was $30,000. In year 2, the Consumer Price Index was 125 and the average nominal level of income was $32,000. What happened to real income from year 1 to year 2?
Answers (1)
Coral Think Inc. is a new company in the publishing industry. It has raised sufficient capital from multiple sources. It is planning to use its capital to purchase certain assets.
Answers (1)
During July at Loeb Corporation, $83,000 of raw materials were requisitioned from the storeroom for use in production. These raw materials included both direct and indirect materials. The indirect materials totaled $4,000.
Answers (1)
The partnership agreement of E Smith and N Patel state that Smith receives 30% and Patel 70% of partnership income and losses. The partnership net income is $100,000 and is allocated to the partners when the income summary account is closed.
Answers (1)
What causes changes from one phase of the business cycle to another?
Answers (1)
Home » Business » IPI Research's common stock is currently selling for $45/share. Their most recent dividend (annual) was $2.50, and is expected to grow at 5% per year indefinitely. What is IPI's cost of retained earnings? 10.56% 10.83% 12.14% 13.00% 17.14%
Sign Up Forgot Password?