If a stock’s dividend is expected to grow at a constant rate

| June 8, 2016

Question
1. If a stock’s dividend is expected to grow at a constant rate of 5% a year, the expected return should be around what number?

2. The expected return on JG’s stock is 14%. The stock’s dividend is expected to grow at a constant rate of 8%, and it currently sells for $50 a share. What is the dividend yield and stock price?

3. A stock is expected to pay a dividend of 2% at the end of the year on the basis of a $100 par. The required rate of return is rs= 12.5%, and the expected constant growth rate is g = 8.5%. What is the current stock price?

4. JG’s perpetual preferred stock sells for $54.76 per share, and it pays a 2.5% annual dividend every quarter. If the company were to sell a new preferred issue, it would incur a flotation cost of $175 flat fee of the price paid by investors. What is the company’s cost of preferred stock for use in calculating the WACC?

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