Flag Dietterich Electronics wants its shareholders to earn a return of 7% on their investment in the company. At what price would the stock need to be priced today if Dietterich Electronics had a a. $0.20 constant annual dividend foreverb. $1.00 constant annual dividend foreverc. $1.60 constant annual dividend foreverd. $2.90 constant annual dividend forever

a. The price at which the stock would need to be priced today is approximately $2.86.

b. The price at which the stock would need to be priced today is approximately $14.29.

c. The price at which the stock would need to be priced today is approximately $22.86.

d. The price at which the stock would need to be priced today is approximately $41.43.

Explanation:

Since the annual dividend is constant in all cases, the price at which the stock need to be priced today can be calculated using the following formula:

P = d / r  ……………………………………… (1)

Where;

P = current price per share or price at which the stock would need to be priced today = ?

d = Constant annual dividend forever = To be given

r = required return = 7%, or 0.07

Using the formula above, we have:

a. $0.20 constant annual dividend forever

Substituting the values into equation (1), we have:

P = $0.20 / 0.07 = $2.85714285714286

Approximating to 2 decimal places, we have:

P = $2.86

Therefore, the price at which the stock would need to be priced today is approximately $1.82.

b. $1.00 constant annual dividend forever

Substituting the values into equation (1), we have:

P = $1.00 / 0.07 = $14.2857142857143

Approximating to 2 decimal places, we have:

P = $14.29

Therefore, the price at which the stock would need to be priced today is approximately $14.29.

c. $1.60 constant annual dividend forever

Substituting the values into equation (1), we have:

P = $1.60 / 0.07 = $22.8571428571429

Approximating to 2 decimal places, we have:

P = $22.86

Therefore, the price at which the stock would need to be priced today is approximately $22.86.

d. $2.90 constant annual dividend forever

Substituting the values into equation (1), we have:

P = $2.90 / 0.07 = $41.4285714285714

Approximating to 2 decimal places, we have:

P = $41.43

Therefore, the price at which the stock would need to be priced today is approximately $41.43.

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