Suppose a company currently pays an annual dividend of $2.96 on its common stock

Question

Suppose a company currently pays an annual dividend of $2.96 on its common stock in a single installment, and management plans on raising this dividend by 4% per year indefinitely. If the required rate of return on this stock is 11%, what is the current share price?

Stock price is ?

Suppose a company currently pays an annual dividend of $2.96 on its common stock in a single installment, and management plans on raising this dividend by 4% per year indefinitely. If the required rate of return on this stock is 11%, what is the current share price?

Stock price is ?

Explanation / Answer

Annual Dividedn D = 2.96
Growth g = 4%
Rate of return R= 11%
Price of share = D*(1+g)/(R-g) = 2.96 * ( 1+4%)/( 11% -4%)
= 2.96 * 1.04/0.07 = 2.96 * 104/7 = 43.98

Best of Luck. God Bless


Best of Luck. God Bless

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