Two years ago the Webster Corporation paid a dividend of D-2 = $8.00 and has just paid a dividend of D0 = $7.22. If the dividend growth rate implicit in these two dividend amounts has been constant and is expected to remain constant for the foreseeable future, determine this constant growth rate, g. If Webster’s equity β = 1.2, the expected return on the market, E[RM] = 12%, and the risk-free rate, RF = 7%, calculate the required return , kC/S, for Webster Corporation stock. Use the information in parts (A) and (B) to determine the current price, P0, of Webster Corporation’s stock. What dividend yield and capital gain is Webster stock offering?

1. (Stock Valuation Problem 2)

Two years ago the Webster Corporation paid a dividend of D_-2 = $8.00 and has just paid a dividend of D₀ = $7.22.

1. If the dividend growth rate implicit in these two dividend amounts has been constant and is expected to remain constant for the foreseeable future, determine this constant growth rate, g.
2. If Webster’s equity β = 1.2, the expected return on the market, E[R_M] = 12%, and the risk-free rate, R_F = 7%, calculate the required return , k_C/S, for Webster Corporation stock.
3. Use the information in parts (A) and (B) to determine the current price, P₀, of Webster Corporation’s stock.
4. What dividend yield and capital gain is Webster stock offering?

Dividend Yield__________      Capital Gain__________

1. What will Webster Corporation’s common stock value be in 10 years?