Question

Nyeil is a consumer products firm that is growing at a constant rate of 6.5 percent. The firm’s last dividend was R3.36. If the required rate of return is 18 percent, what is the market value of this stock if dividends grow at the same rate as the firm?

Answer 1

31.12

Step-by-step explanation:

Given that,

Growing at a constant rate = 6.5%

Firm’s last dividend, R = 3.36

Required rate of return = 18%

Expected dividend next year = 3.36 × (1 + 6.5%)

= 3.5784

Market value of stock:

= Expected dividend next year ÷ ( required return - growth rate)

= 3.5784 ÷ (0.18-0.065)

= 31.11652

= 31.12