Question

The ZZ Corporation has just paid a dividend of $3.5M. The expected growth of the company is 7.3% per year. The interest rate used for this type of corporation is 10.4%. Assume that there are 800,000 shares outstanding. What is the value of a share of stock in the ZZ Corporation? (Keep your answer to 2 decimal places, e.g. xx.12.)

Answer 1

price = $151.43

Explanation:

Given data:

dividend = $3.5M

Growth percentage = 7.3% per year

Number of share is 800,000

Price for stock can be calculated as

`price  = (dividend * (1+g))/(Ke-g)`

here,

Ke = 10.4%

g = 7.3%

dividend per share
`= (3.5M)/(800,000)`= $4.375 PER SHARE

So we have

`price  = (4.375* (1+0.073))/(0.104 - 0.073)`

`price = (4.375* 1.073)/(0.031)`

price = $151.43