Maxwell Communications paid a dividend of $1.20 last year. Over the next 12 mont
ID: 2717518 • Letter: M
Question
Maxwell Communications paid a dividend of $1.20 last year. Over the next 12 months, the dividend is expected to grow at 15 percent, which is the constant growth rate for the firm (g). The new dividend after 12 months will represent D1. The required rate of return (Ke) is 22 percent.
Compute the price of the stock (P0). (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Maxwell Communications paid a dividend of $1.20 last year. Over the next 12 months, the dividend is expected to grow at 15 percent, which is the constant growth rate for the firm (g). The new dividend after 12 months will represent D1. The required rate of return (Ke) is 22 percent.
Explanation / Answer
Last Year dividend = 1.2
Current Year dividend = 1.2*15% = .18+1.20 = 1.38
Cost of Equity = 22%
Price of the Share = D1/ Ke
Price of the Share = 1.38/22% = 6.2727