Question

Richardson Brothers is expected to pay a $0.75 per share dividend at the end of the year (that is, D 1 = $0.75). The dividend is expected to grow at a constant rate of 5 percent a year. The required rate of return on the stock, r s, is 10 percent. What is the stock’s value per share?

Answer 1

$15

Step-by-step explanation:

Dividend growth rate (g) = 5% per year

Expected Dividend (D1) = $0.75

Required return rate (R) = 10%

Now, we have calculate the stock’s value per share by the following formula:

Current Stock Value (P0) = D1 ÷ (R-g)

P0 = $0.75 ÷ (0.10 – 0.05)

= $0.75 ÷ 0.05

= $15

Current Stock Value per Share (P0) = $15