Mccracken roofing, inc., common stock paid a dividend of $1.161.16 per share last year. the company expects earnings and dividends to grow at a rate of 66 % per year for the foreseeable future.

a. what required rate of return for this stock would result in a price per share of $2222 ?

b. if mccracken expects both earnings and dividends to grow at an annual rate of 1111 %, what required rate of return would result in a price per share of $2222 ?

Question

India Lam

Business

22 June, 23:02

Mccracken roofing, inc., common stock paid a dividend of $1.161.16 per share last year. the company expects earnings and dividends to grow at a rate of 66 % per year for the foreseeable future.

a. what required rate of return for this stock would result in a price per share of $2222 ?

b. if mccracken expects both earnings and dividends to grow at an annual rate of 1111 %, what required rate of return would result in a price per share of $2222 ?

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Answers (1)

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Madelynn Jones · Answer 1

The solution for the problem is:

a. Ks = D1 / P0 + g

= 1.16 x 1.06 / 22 + 0.06

= 1.2296/22 + 0.06

= 0.056 + 0.06

= 0.116 or 11.6% would be the required rate of return for this stock.

b. Ks = 1.16 x (1.11) / 22 +.11

= 1.2876/22 +.11

= 0.059 +.11

= 0.169 or 16.9% would be the required rate of return if Mccracken expects both earnings and dividends to grow.