Previous Page Nest Peage Page 31 of 34 Note: It is recommended that you save y o

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Previous Page Nest Peage Page 31 of 34 Note: It is recommended that you save y our response as you complete each question. Question 31 (3.5 points) Pharsalus Inc. just paid a dividend (i.e., D0) of $ 4.25 per share. This dividend is expected to grow at a rate of 3.0 percent per year forever. The appropriate discount rate for Pharsalus's stock is 9.1 percent. What is the price of the stock? (Round your answer to 2 decimal places and record your answer without dollar sign or commas). Your Answer: Answer Save Page 31 of 34 Previous Page Next Page Go to Submit Quiz Save All Responses

Explanation / Answer

CALCUALTION OF D1 Last Dividend Growth Rate Dividend of the year D0= 4.25 Dividend after the Year 1= D1                  4.25 3%                        4.38 CALCULATION OF THE VALUE OF THE STOCK PRICE Formula P = D1 / Ke - g Ke = Cost of Equity = Expected return = 9.1%          or =         0.091 g = Growth rate = 3% =                                                      or = 0.03 P = price of the stock P        = D1 "/" By   Ke (-) Growth P        =                    4.38 "/" By                 0.091 (-) 0.03 P        =                    4.38 "/" By                 0.061 P        =                 71.76 Answer = Market Value of the Stock = 71.76

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