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

Question

Antiques ‘R’ Us is a mature manufacturing firm. The company just paid a dividend of $11.00, but management expects to reduce the payout by 4.75 percent per year, indefinitely.

If you require a return of 10 percent on this stock, what will you pay for a share today? (Do not round intermediate calculations. 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 $11.00, but management expects to reduce the payout by 4.75 percent per year, indefinitely.

Explanation / Answer

Expected dividend per share after 1 year = 11*(1-0.0475) = $10.4775

Price per share today = Expected Dividend / Expected return

= 10.4775 / 0.10

= $104.78

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