MMK Cos. normally pays an annual dividend. The last such dividend paid was $2.45

Question

MMK Cos. normally pays an annual dividend. The last such dividend paid was $2.45, all future dividends are expected to grow at a rate of 8 percent per year, and the firm faces a required rate of return on equity of 14 percent. If the firm just announced that the next dividend will be an extraordinary dividend of $25.20 per share that is not expected to affect any other future dividends, what should the stock price be? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Explanation / Answer

Price =25.20/1.14+((2.45*1.08^2)/(0.14-0.08))/1.14=63.88

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