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Question

Ecology Labs Inc. will pay a dividend of $4.30 per share in the next 12 months (D1). The

required rate of return (Ke) is 18 percent and the constant growth rate is 10 percent. (Each question is independent of the others.)   

a. Compute the price of Ecology Labs’ common stock. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. Assume Ke, the required rate of return, goes up to 23 percent. What will be the new price? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c. Assume the growth rate (g) goes up to 13 percent. What will be the new price? Ke goes back to its original value of 18 percent. (Do not round intermediate calculations. Round your answer to 2 decimal places.

d. Assume D1 is $5.10. What will be the new price? Assume Ke is at its original value of 18 percent and g goes back to its original value of 10 percent. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 
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