Steve's Cider Shack, Inc. just paid a dividend of $8 per share of common stock. The dollar amount of the dividends is expected to grow at a constant 2% per year definitively into the future. The required rate of return from shares of common stock from similar businesses in the current economic climate is 13%

What would you expect the current market price of a share of Steve's Cider Shack common stock to be?

Assuming the cash dividend amount and the growth rate are accurate, what is the annual rate of return on your investment in Steve's stock if you purchased shares for $63 per share?

Question

Mckenzie Wilkerson

Business

27 January, 22:12

Steve's Cider Shack, Inc. just paid a dividend of $8 per share of common stock. The dollar amount of the dividends is expected to grow at a constant 2% per year definitively into the future. The required rate of return from shares of common stock from similar businesses in the current economic climate is 13%

What would you expect the current market price of a share of Steve's Cider Shack common stock to be?

Assuming the cash dividend amount and the growth rate are accurate, what is the annual rate of return on your investment in Steve's stock if you purchased shares for $63 per share?

+4

Answers (1)

Know the Answer?

Taz · Answer 1

Check the following calculation

Explanation:

Current price : D0 (1+g) / (Rs-g)

8 (1+.02) / (.13-.02)

8 * 1.02 /.11

= $ 74.18 per share

2) Dividend: 8 (1+.02) = 8.16

Annual rate of return : [P1 - P0+D ]/P0

[74.18 - 63 + 8.16 ]/63

19.34/63

.3070 or 30.70%