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Hirshfeld Corporation's stock has a required rate of return of 10.25%, and it sells for $57.50 per share. The dividend is expected to grow at a constant rate of 6.00% per year. What is the expected year-end dividend, D1?a. $2.20b. $2.44c. $2.69d. $2.96e. $3.25

Respuesta :

Answer:

Expected dividend will be $2.44

So option (b) will be correct option

Explanation:

We have given required rate of return = 10.25 % = 0.1025

Value of stock= $57.50

Growth rate = 6 % = 0.06

We have to find the expected dividend

We know that cost of stock is given by

[tex]cost\ of\ stock=\frac{D_1}{r_s-g}[/tex], here [tex]D_1[/tex] is expected dividend [tex]r_s[/tex] is return ratio and g is growth rate

So [tex]57.50=\frac{D_1}{0.1025-0.06}[/tex]

[tex]D_1=$2.44[/tex]

So option (b) will be correct option

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