Question

XCEL Corporation paid a dividend yesterday for $1.50. They expect to pay dividends annually at a constant 6 percent annual growth rate indefinitely. If the required rate of return on this investment is 12 percent, what is the current value of this common stock?

Answer 1

Answer:

$26.50

Explanation:

The computation of the current value of the common stock is shown below:

Current price is

= Current year dividend ÷ (Required rate of return - Growth rate)

where

Current year dividend is $1.59

The Required rate of return is 12%

ANd, the growth rate is 6%

Now place these values to the above formula

So, the current price of the common stock is

= ($1.50 × 1.06) ÷ (0.12 - 0.06)  

= $1.59 ÷ 0.06

= $26.50

Answer 2

An amount of money that is paid by the company to its shareholders on the regular basis is called a dividend.

The current value of this common stock is $26.50.

This can be estimated by:

$\text{Current price} = \dfrac{\text{Current year dividend}}{(\text{Required rate of return - Growth rate})}$

Where,

The current year interest = $1.59

The essential rate of return = 12%

The growth rate = 6%

Hence, the current value of the common stock is:

$= \dfrac{(\ 1.50 \times 1.06)}{(0.12 - 0.06)}$

$= \dfrac{\ 1.59}{0.06}$

= $26.50

Therefore, the current price of the common stock will be $26.50.

To learn more about dividend and shareholders follow the link:

https://brainly.com/question/16155930