Last year, Wilderness Adventures paid an annual dividend of $3.40 per share. The

Question

Last year, Wilderness Adventures paid an annual dividend of $3.40 per share. The firm recently announced that it will increase its dividend by a constant 11.0 percent annually. What is one share of this stock worth today at a required rate of 17.2 percent?

$62.08

$61.96

$60.38

$60.87

Last year, Wilderness Adventures paid an annual dividend of $3.40 per share. The firm recently announced that it will increase its dividend by a constant 11.0 percent annually. What is one share of this stock worth today at a required rate of 17.2 percent?

Explanation / Answer

Price = Expected Dividend / ( Required rate of return - growth rate)

= ( $ 3.40 * 111%) / ( $ 17.2% - 11%)

= $ 3.774 / 6.2%

= $ 60.87

Hence the correct answer is $ 60.87

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