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18 August, 03:20

Woidtke Manufacturing's stock currently sells for $22 a share. The stock just paid a dividend of $1.20 a share (i. e., D0 5 $1.20), and the dividend is expected to grow forever at a constant rate of 10% a year. What stock price is expected 1 year from now? What is the estimated required rate of return on Woidtke's stock?

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  1. 18 August, 04:24
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    Expected 1 year = $24.20

    Required return = 16%

    Explanation:

    The computation of expected of 1 year and rate of return is shown below:

    A = P * (1 + r : 100) ^n

    which represents

    A = future value

    P = present value

    r = rate of interest

    n = time period.

    Price after year

    1 = $22 * (1.1)

    =$24.20

    2. Required return = (Dividend : Current price) + Growth rate

    = (1.20 * 1.1) : 22 + 0.1

    = 16%
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