879 Sun 8:30 AM a E mathxl.com Fin320_F1713 Test: Valuation Exam Time Remaining:

Question

879 Sun 8:30 AM a E mathxl.com Fin320_F1713 Test: Valuation Exam Time Remaining: 00:59:01 Submit Test This Question: 1 pt 7 of 25 (3 complete) This Test: 25 pts possible Avril Synchronistics will pay a dividend of S1.40 per share this year. It is expected that this dividend will grow by 4% each year in the future. What will be the current value of a single share of Avril's stock if the firm's equity cost of capital is 15%? OA. S9.55 OB. $12.73 O C. $14.00 D. S8.91 Click to select your answer did not

Explanation / Answer

Using the dividend growth model

Price of stock = Dividend/(R-g)

where g is the growth rate of the dividend, and R is the cost of equity capital

Price of stock = 1.40/(.15 - .04)

= 12.727 or 12.73

B) $12.73

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