What is the value of this stock today

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1. Southern Foods just paid an annual dividend of $3.10 a share. Management estimates the dividend will increase by 4 percent for one year then 8 percent for two years then 2% forever. The required rate of return is 12 percent. What is the value of this stock today?

2. A company has a required return of 16%, a profit margin of 3%, a D/E ratio of 1 and total asset turnover of 2 and just paid a $3.00 Dividend.

A) The company has a dividend payout ratio of 20%; calculate the price and forward P/E ratio.

B) If the company changed its dividend payout ratio to 40%, calculate the price and forward P/E ratio?

C) Explain why the price and P/E ratio increased or decreased. What variables are critical to determine if they should increase or decrease their dividend payout ratio? (Hint be specific what variables do you need to know.)

Reference no: EM131238184

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