Question

Suppose a company currently pay an annual dividend of $3.20 on its common stock in a single annual installment, and management plans on raising this dividend by 6 percent per year indefinitely. If the required return on this stock is 12 percent, what is the current share price?

Answer 1

Ans. The current share price is $56.53

Step-by-step explanation:

In order to find the price of this share, we have to use the following formula.

`Price=(Do(1+g))/((r-g))`

In our case, Do=$3.2; g=6% and r=12%

Therefore

`Price=(3.2(1+0.06))/((0.12-0.06))=$56.53`

Best of luck.