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# Calculating required rate of return, present value, stock price

Can you help me get started with this assignment?

The last dividend that was paid yesterday (D0) on a Corporation's common stock was \$8.00, and the expected growth rate is 0 percent. The required rate of return on this stock is 10 percent.

1. What is the present value of the future growth opportunity represented by the 5% growth rate, compared to 0% growth rate?

2. What is the highest price you should be willing to pay for this stock?

3. Suppose the firm's expected growth rate is 5% now, what is the price of the stock?
Assume that the other information remains the same as before,
i.e., D0 = \$8; ks = 10%.

4. Assume the constant growth rate is 5%. What is the stock price at time 1, i.e., one year from today? Assume that the other information remains the same as before,
i.e., D0 = \$8; ks = 10%.

#### Solution Preview

The last dividend that was paid yesterday (D0) on a Corporation's common stock was \$8.00, and the expected growth rate is 0 percent. The required rate of return on this stock is 10 percent.

1. What is the present value of the future growth opportunity represented by the 5% growth rate, compared to 0% growth rate?

The PVGO is the difference in price (which is the present ...

#### Solution Summary

The solution explains some calculations relating to required rate of return, present value, price of a stock, etc.

\$2.19