You believe that the Non-stick Gum Factory will pay a dividend of $3 on its comm

Question

You believe that the Non-stick Gum Factory will pay a dividend of $3 on its common stock next year. Thereafter, you expect dividends to grow at a rate of 2% 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?

You believe that the Non-stick Gum Factory will pay a dividend of $3 on its common stock next year. Thereafter, you expect dividends to grow at a rate of 2% 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?

Explanation / Answer

Dividend 3 Dividend growth 2.00% Rate of return 12.00% Current Price 30.00 Value of the stock =Dividend per share/(Discount rate - Dividend growth rate)

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