Boehm Incorporated is expected to pay a $2.30 per share dividend at the end of t
ID: 2683982 • Letter: B
Question
Boehm Incorporated is expected to pay a $2.30 per share dividend at the end of this year (i.e., D1 = $2.30). The dividend is expected to grow at a constant rate of 6% a year. The required rate of return on the stock, rs, is 20%. What is the value per share of the company's stock? Round your answer to the nearest cent.$
Check My Work (3 remaining)
Which of the following statements is CORRECT, assuming stocks are in equilibrium?
a. Assume that the required return on a given stock is 13%. If the stock's dividend is growing at a constant rate of 5%, its expected dividend yield is 5% as well.
b. The dividend yield on a constant growth stock must equal its expected total return minus its expected capital gains yield.
c. Other things held constant, the higher a company's beta coefficient, the lower its required rate of return.
d. A stock's dividend yield can never exceed its expected growth rate.
e. A required condition for one to use the constant growth model is that the stock's expected growth rate exceeds its required rate of return.
A company currently pays a dividend of $3 per share, D0 = 3. It is estimated that the company's dividend will grow at a rate of 25% percent per year for the next 2 years, then the dividend will grow at a constant rate of 7% thereafter. The company's stock has a beta equal to 1.15, the risk-free rate is 3.5 percent, and the market risk premium is 6 percent. What is your estimate is the stock's current price? Round your answer to the nearest cent.
$
Explanation / Answer
P0= 2.3/(.2-.06) Price= $16.429 c. Other things held constant, the higher a company's beta coefficient, the lower its required rate of return. Ke= 3.5+1.15x6= 10.4% P=( 3x1.25/1.104)+[(3.75x1.07)/(.104-.07)]/1.104^2 = 100.22