Question

Spacefood Products will pay a dividend of $2.40 per share this year. It is expected that this dividend will grow by 3% per year each year in the future. What will be the current value of a single share of Spacefood's stock if the firm's equity cost of capital is 10%?

A) $24.00

B) $23.97

C) $30.22

D) $34.29

Answer 1

D) $34.29

Step-by-step explanation:

Spacefood's stock if the firm's equity cost of capital is 10%, also the discount rate to calculate the present value of Spacefood's stock

The current value of a single share = (dividend per share) / (discount rate - growth rate)

= $2.4/(10%-3%)

=$34.29