Antiques R Us is a mature manufacturing firm. The company just paid a dividend o

Question

Antiques R Us is a mature manufacturing firm. The company just paid a dividend of $9.40, but management expects to reduce the pay out by 4 percent per year indefinitely. If you require a return of 10 percent on this stock, what will you pay for a share today? (Round your answer to 2 decimal places. (e.g., 32.16))

Antiques R Us is a mature manufacturing firm. The company just paid a dividend of $9.40, but management expects to reduce the pay out by 4 percent per year indefinitely. If you require a return of 10 percent on this stock, what will you pay for a share today? (Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Hi,

Please find the answer as follows:

Current Share Price = D1/(ke - g)

D1 = 9.40*(1-4%)

ke = 10%

g = -4%

Current Share Price = 9.40*(1-4%)/(10%-(-4%)) = $64.46

Answer is $64.46

Thanks.

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