AirJet Best Parts, Inc. is concerned about current changes in its stock prices for company and would like to find out the stock prices for key competitors. Key competitors comprise Raytheon, Boeing, Lockheed Martin, and Northrop Grumman Corporation.
1. Using the dividend growth model and supposing a dividend growth rate of 5%, what is the rate of return for one of 3 key competitors? Use Yahoo Finance to acquire the latest dividend amount and price for one selected company.
2. Using rate of return above, what should be the recent share price of AirJet Best Parts, Inc. if the company maintains the stable 1% growth rate in dividends and the most current dividend per share paid on stock was $1.50? Show your computations.
3. Suppose AirJet Best Parts has as well a preferred stock issue. The most recent dividend per share paid on stock was also $1.50, the same as the common stock. Which one would you think has higher price, the preferred stock or current stock? Discuss your rationale.
4. What would occur with the price you evaluate above if AirJet Best Parts, Inc. announces that dividends at the end of year will raise? What if the required rate of return rises? What changes in dividends will influence the stock price and how?