QUESTION 19 Suppose that the Walt Disney Corporation just paid a dividend of S2

Question

QUESTION 19 Suppose that the Walt Disney Corporation just paid a dividend of S2 and that the dividend is expected to grow at a rate of 63% per year. If you believe that the stock s required return is 9% what is the price are you willing to pay for this stock? $22.22 $78.74 $74.07 $80.74 None of these QUESTION 20 Lululemon is expected to pay a dividendof $0.80 next year and the dividend is expected to grow at a constant rate of 5% per year forever. The stock s required rate of return is 7%. What is intrinsic value of the stock today? P-$0.80(1.05y(.07- 05) P-$o.80/(.07-.05) P-($0.80(1.05).07 P= 5%+0.8 0(7%-5%) P-$0.80/1.07 Click Save and Submit to save and submit. Click Save All Answers to save all answers Save All Answers

Explanation / Answer

Dear student, only one question is allowed at a time. I am answering the first question

19)

Price of a constant dividend growth stock

= D1 / (Re – G)

Where,

D1 = Expected dividend next year

= Current year dividend x (1 + Growth)

= $2 x 1.063

= $2.126

Re = Required rate of return = 9% or 0.09

G = Growth rate = 6.3% or 0.063

So, Price

= $2.126 / (0.09 – 0.063)

= $2.126 / 0.027

= $78.74

So, as per above calculations, option B is the correct option

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---