King Waterbeds has an annual cash dividend policy that raises the dividend each year by 4%. The most recent dividend, Div 0, was $ 0.50 per share. What is the stock's price if a. an investor wants a return of 7%? b. an investor wants a return of 10%? c. an investor wants a return of 11%? d. an investor wants a return of 15%? e. an investor wants a return of 18%? a. What is the stock's price if an investor wants a return of 7%? $ nothing (Round to the nearest cent.)

a) With a 7% return, the current stock price = $34.67.

b) The current stock price = $17.33, with a 10% return.

c) The current stock price = $14.86, with a 11% return.

d) The current stock price = $9.45, with a 15% return.

e) Current stock price = $7.43 assuming the interest rate is 18%

Explanation:

Requirement A

An investor wants a return of 7%,

We know,

Dividend-growth model, stock price, = ÷ ( - g)

Here,

= Today's stock price = ?

= 7% = 0.07

g = growth rate = 4% = 0.04

= Next year dividend = = $0.50 × (1 + 0.04) = $0.50 × 1.04 = $0.52

Putting the values into the above formula, we can get,

= ÷ ( - g)

= $1.04 ÷ (0.07 - 0.04)

or, = $1.04 ÷ 0.03

Hence with a 7% return, the current stock price = $34.67.

Requirement B

An investor wants a return of 10%,

We know,

Dividend-growth model, stock price, = ÷ ( - g)

Here,

= Today's stock price = ?

= 10% = 0.10

g = growth rate = 4% = 0.04

= Next year dividend = = $0.50 × (1 + 0.04) = $0.50 × 1.04 = $0.52

Putting the values into the above formula, we can get,

= ÷ ( - g)

= $1.04 ÷ (0.10 - 0.04)

or, = $1.04 ÷ 0.06

Hence the current stock price = $17.33, with a 10% return.

Requirement C

An investor wants a return of 11%,

We know,

Dividend-growth model, stock price, = ÷ ( - g)

Here,

= Today's stock price = ?

= 11% = 0.11

g = growth rate = 4% = 0.04

= Next year dividend = = $0.50 × (1 + 0.04) = $0.50 × 1.04 = $0.52

Putting the values into the above formula, we can get,

= ÷ ( - g)

= $1.04 ÷ (0.11 - 0.04)

or, = $1.04 ÷ 0.07

Hence the current stock price = $14.86, with a 11% return.

Requirement D

An investor wants a return of 15%,

We know,

Dividend-growth model, stock price, = ÷ ( - g)

Here,

= Today's stock price = ?

= 15% = 0.15

g = growth rate = 4% = 0.04

= Next year dividend = = $0.50 × (1 + 0.04) = $0.50 × 1.04 = $0.52

Putting the values into the above formula, we can get,

= ÷ ( - g)

= $1.04 ÷ (0.15 - 0.04)

or, = $1.04 ÷ 0.11

Hence the current stock price = $9.45, with a 15% return.

Requirement E

An investor wants a return of 18%,

We know,

Dividend-growth model, stock price, = ÷ ( - g)

Here,

= Today's stock price = ?

= 18% = 0.18

g = growth rate = 4% = 0.04

= Next year dividend = = $0.50 × (1 + 0.04) = $0.50 × 1.04 = $0.52

Putting the values into the above formula, we can get,

= ÷ ( - g)

= $1.04 ÷ (0.18 - 0.04)

or, = $1.04 ÷ 0.14

Hence the current stock price = $7.43, with a 18% return.

rational decision making is a multi-step process for making choices between alternatives. the process of rational decision making favors logic, objectivity, and analysis over subjectivity and insight. the word “rational” in this context does not mean sane or clear-headed as it does in the colloquial sense.

hope this

answer; tech (a) is correct;