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1 March, 06:45

LED Corp.'s common stock paid $2.50 in dividends last year (D0 ). Dividends are expected to grow at a 12minuspercent annual rate forever. If LED's current market price is $40.00, and your required rate of return is 23 percent, should you purchase the stock?

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  1. 1 March, 07:08
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    No, you should not purchase the stock as the stock is over priced.

    Explanation:

    Stock Price should be

    Stock Price = Dividend last year / Required Rate of Return

    = $2.50 / 23%

    = $10.86

    The current market price of the stock is $40 so the stock is over priced as it is $10.86 that is why you should not purchase the stock.
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