You believe that the Non-stick Gum Factory will pay a dividend of $2 on its comm

Question

You believe that the Non-stick Gum Factory will pay a dividend of $2 on its common stock next year. Thereafter, you expect dividends to grow at a rate of 5% a year in perpetuity. If you require a return of 12% on your investment, how much should you be prepared to pay for the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

(Please explain steps)

You believe that the Non-stick Gum Factory will pay a dividend of $2 on its common stock next year. Thereafter, you expect dividends to grow at a rate of 5% a year in perpetuity. If you require a return of 12% on your investment, how much should you be prepared to pay for the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Explanation / Answer

Ans

Dividend per stock expected next year D1 $2   

Required rate of return ( cosy of equity ) 12%

Growth rate in Dividend (g) 5%

Current Market price of the stock DI/k-g

2/((.12-.05)

28.57

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.