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CALIFORNIA CLINICS Strayer University HSA 530: HealthCare Human Resource Management February 12, 2012

California Clinics, an investor-owned chain of ambulatory care clinics, just paid a dividend of $2 per share. The firm’s dividend is expected to grow at a constant rate of 5% per year, and investors require a 15 % rate of return on the stock. Hint: consult pages 396-397 of your text book for correct formula. Please consult your syllabi for assignment grading criteria. 1. What is the stock’s value?
D = the most resent dividend which is = $2.00 per share.
E (g) = the constant growth rate = 5% = 0.05 per year.
R (Re) = Investors rate of return on the stock = 15% = 0.15

Formula used E (P) = D x (1 + E (g)) / (R (Re)-E (g))

E (P) = $2.00 x (1+ 0.05) / (0.15- 0.05)

E (P) = $2.00 x (1.05) / (.1)

E (P) = $2.10 / .1

E (P) = $ 21.00
The stock value is $21.00. 2. Suppose the riskiness of the stock decreases, which causes the required rate of return to fall to 13%. Under these conditions, what is the stock’s value? D = the most resent dividend which is = $2.00 per share. E (g) = the constant growth rate = 5% = 0.05 per year. R (Re) = Investors rate of return on the stock = 13% = 0.13

Formula used E (P) = D x (1 + E (g)) / (R (Re)-E (g))

E (P) = $2.00 x (1+ 0.05) / (0.13- 0.05)

E (P) = $2.00 x (1.05) / (.08)

E (P) = $2.10 / .08

E (P) =$ 26.75

The stock value is $26.75. 3. Return to the

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