Question

Sweatshirts Ltd. is downsizing. The company paid a $3.80 annual dividend last year and has announced plans to lower the dividend by30 percent each year. Once the dividend amount becomes zero, the company will go out of business. You have a required rate of returnof 18 percent on this particular stock given the company's situation. What are your shares in this firm worth today on a per share basis?

Answer 1

D= 3.8

G= -0.3

R= 0.18

DDM= D*(1+G)/R-G

= 3.8(0.7)/0.21= $12.66

The value of the stock is $12.66 per share

Step-by-step explanation: