What is the value of a common stock if:

Question

a) If earnings and dividends are growing annually at 10%, the current dividend is $1.32 and investors require a 15% return on investmenets in common stock?

b)What is the value of this stock if you add risk to the analysis and the firm's beta coefficient is 0.8, the risk-free rate is 9%, and the return on the market is 15%?

Thank you so much, I have lost my book and I need help with this one.

You've given us data about this stock -- but not the current selling price. You need to know that to determine its present value. But -- with earnings and dividends (sales, too?) growing annually at 15%, it's likely that the price will grow at something considerably less than 15%. This is also shown by the low beta coefficient of 0.8.

Answer 1

Bayside Inc plans to pay annual dividends for five more years. The last dividend paid was $1.40 a share. Dividends are increased by 2 percent each year. What is the current value of this stock at a discount rate of 9 percent?