Author Question: Plimpton Inc. just paid a dividend of 1.33. Its stock has a dividend growth rate of 7.6 and a ... (Read 86 times)

stock · **on:** Jul 10, 2018

Plimpton Inc. just paid a dividend of 1.33. Its stock has a dividend growth rate of 7.6 and a required return of 12.21. What is the current stock price if we anticipate dividends stopping in 10 years?

A) 31.04
B) 21.03
C) 11.92
D) 10.64

Question 2

Korver Inc. just paid a dividend of 0.73. Its stock has a dividend growth rate of 5.62 and a required return of 10.21. What is the current stock price if we anticipate dividends stopping in 20 years?

A) 8.62
B) 9.62
C) 10.62
D) 11.62

chjcharjto14 · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

Answer: D
Explanation: D) The price is given by multiplying two components (see Equation 7.8 in the text).
The first component is = = = 31.043.
The second component is 1 - = 1 - = 1 - 0.95891610 = 0.342634.
Thus, price = 31.043 0.342634 = 10.6364, or about 10.64.

Answer to Question 2

Answer: B
Explanation: B) The price is given by multiplying two components (see Equation 7.8 in the text).
The first component is = = = 16.798.
The second component is 1 - = 1 - = 1 - 0.95835220 = 0.572926.
Thus, price = 16.798 0.572926 = 9.624 or about 9.62.