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Finding stock's price and D/E ratio

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1. White Wedding Corporation will pay a $3.05 per share dividend next year. The company pledges to increase its dividend by 5.25 percent per year, indefinitely. If you require an 11 percent return on your investment, how much will you pay for the company's stock today?

2. Fama's Lamas has a weighted average cost of capital of 9.8%. The company's cost of equity is 15%, and its cost of debt is 7.5 percent. The tax rate is 35 percent. What is Fama's debt-equity ratio?

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Solution Summary

There are two problems. Solution to first problem describes the steps to calculate price of a stock that pays growing dividend. Solution to second depicts the methodology to find deb-equity ratio.

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1. Expected dividend next year=D1=$3.05
Growth rate=g=5.25%
Required rate of return=r=11%
Fair price of ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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