Staal Corporation will pay a $2.66 per share dividend next year. The company ple

Question

Staal Corporation will pay a $2.66 per share dividend next year. The company pledges to increase its dividend by 5 percent per year indefinitely. If you require a return of 10 percent on your investment, how much will you pay for the company’s stock today? (Round your answer to 2 decimal places. (e.g., 32.16))

Staal Corporation will pay a $2.66 per share dividend next year. The company pledges to increase its dividend by 5 percent per year indefinitely. If you require a return of 10 percent on your investment, how much will you pay for the company’s stock today? (Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

using the constant growth model , we find price of stock today

P0 = D1 /(R-g)

= 2.66 /(0.10-0.05)

=53.2

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