Question

Burkhardt Corp. pays a constant $13.30 dividend on its stock. The company will maintain this dividend for the next 7 years and will then cease paying dividends forever. If the required return on this stock is 10 percent, what is the current share price?

Answer 1

Answer: $64.75

Step-by-step explanation:

Dividend= $13.30

Duration = 7 years

Required return = 10%

Current share price will be:

= (13.3/1.1) + (13.3/1.1^2) + (13.3/1.1^3) + (13.3/1.1^4) + (13.3/1.1^5) + (13.3/1.1^6) + (13.3/1.1^7)

= 12.09 + 10.99 + 9.99 + 9.08 + 8.26 + 7.51 + 6.83

= 64.75

Therefore, the current share price is $64.75