Merrell enterprises' stock has an expected return of 14%. the stock's dividend is expected to grow at a constant rate of 8%, and it currently sells for $50 a share. which of the following statements is correct? a. the stock's dividend yield is 8%.b. the current dividend per share is $4.00.c. the stock price is expected to be $54 a share one year from now. d. the stock price is expected to be $57 a share one year from now. e. the stock's dividend yield is 7%

The answer is option c). The stock price is expected to be $54 a share one year from now

a). The annual dividend payment=$3 per share

b). Dividend yield==6%

c). The expected stock price is $57 after 1 year

Explanation:

a). Calculate the expected dividend payment

Using the expression for calculating the required rate of return, we can calculate the expected dividend payment as follows:

RRR=(EDP/SP)+DGW

where;

RRR=required rate of return

EDP=expected dividend payment

SP=share price

DGW=dividend growth rate

In our case:

RRR=14%=14/100=0.14

EDP=unknown=d

SP=$50 a share

DGW=8%=8/100=0.08

replacing in the original expression;

0.14=(d/50)+0.08

0.14-0.08=(d/50)

d/50=0.06

d=0.06×50

d=3

The annual dividend payment=$3 per share

b). Calculate the dividend yield

The dividend yield is expressed using the formula below;

Dividend yield=Annual dividend/share price

where;

Annual dividend=$3

share price=$50 a share

replacing;

Dividend yield=3/50=0.06=6%

c). Future price of stock after one year

Future price=Current price(1+dividend growth rate)^n

where;

Current price=$50

dividend growth rate=8%=8/100=0.08

n=1 year

replacing;

Future price=50×(1+0.08)^1=54

Future price=$54

The expected stock price is $54 after 1 year

disadvantages of leasing a vehicle: no vehicle equity and mileage limitations

disadvantages of purchasing a vehicle: large down payment and vehicle depreciation

#plato4lyfe