Staal Corporation will pay a $2.58 per share dividend next year. The company ple

Question

Staal Corporation will pay a $2.58 per share dividend next year. The company pledges to increase its dividend by 4 percent per year indefinitely. If you require a return of 12 percent on your investment, how much will you pay for the company’s stock today?

Staal Corporation will pay a $2.58 per share dividend next year. The company pledges to increase its dividend by 4 percent per year indefinitely. If you require a return of 12 percent on your investment, how much will you pay for the company’s stock today?

Explanation / Answer

Calculation of the price of the stock As per the formula Price = Dividend at year 1/ Ke-g Ke = Required Return G = Growth rate Price = 2.58/.12-.04 Price = 2.58/.08 Price = 32.25 We will pay $ 32.25 for the company`s stock today.

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