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Compute the price of Ecology Labs common stock

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Question - Ecology Labs Inc. will pay a dividend of $5.25 per share in the next 12 months (D1). The required rate of return (Ke) is 22 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.

b. Assume Ke, the required rate of return, goes up to 25 percent. What will be the new price?

c. Assume the growth rate (g) goes up to 15 percent. What will be the new price? Ke goes back to its original value of 22 percent.

d. Assume D1 is $6.00. What will be the new price? Assume Ke is at its original value of 22 percent and g goes back to its original value of 10 percent.

Reference no: EM132603969

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