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Wasco Company: dividend growth rate and ROR calculation

Wasco Company's earnings and common stock dividends have been growing at an annual rate of 6.0% over the past several years. The firm currently (t=0) pays and annual dividend of $2.00.

a) Assuming that Wasco's common stock dividends continue to grow at the historical rate for the foreseeable future, what is the value of the company's common stock to an investor who requires a 14% rate of return?

b) Suppose that the current market price of Wasco's common stock is $30 and that the marginal investor's required rate of return on the stock is 12%. What growth rate is implied by this information, assuming that the firm's earnings and dividends are expected to grow at a constant rate for the foreseeable future?

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stock dividends
Wasco Company's earnings and common stock dividends have been growing at an annual rate of 6.0% over the past several years. The firm currently (t=0) pays and annual dividend of $2.00.

a) Assuming that Wasco's common stock dividends continue to grow at the historical rate for ...

Solution Summary

This solution is comprised of a detailed explanation to answer what is the value of the company's common stock to an investor who requires a 14% rate of return and what growth rate is implied by this information, assuming that the firm's earnings and dividends are expected to grow at a constant rate for the foreseeable future.

$2.19