Goulds Corp. pays a constant $9.50 dividend on its stock. The company will maint

Question

Goulds Corp. pays a constant $9.50 dividend on its stock. The company will maintain this dividend for the next 11 years and will then cease paying dividends forever. If the required return on this stock is 11 percent, what is the current share price?

Goulds Corp. pays a constant $9.50 dividend on its stock. The company will maintain this dividend for the next 11 years and will then cease paying dividends forever. If the required return on this stock is 11 percent, what is the current share price?

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Current Share Price = 9.50/(1+.11)^1 + 9.50/(1+.11)^2 + 9.50/(1+.11)^3 + 9.50/(1+.11)^4 + 9.50/(1+.11)^5 + 9.50/(1+.11)^6 + 9.50/(1+.11)^7 + 9.50/(1+.11)^8 + 9.50/(1+.11)^9 + 9.50/(1+.11)^10 + 9.50/(1+.11)^11 = $58.96

Answer is $58.96.

Thanks.

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