Question

Whole Foods will pay an annual dividend of $1.85 next year. The company just announced that future dividends will be increasing by 2 percent annually. How much are you willing to pay for one share of this stock if you require a 14 percent return?

Answer 1

Po = D1/Ke-g

Po = $1.85/0.14-0.02

Po = $1.85/0.12

P0 = $15.42

Step-by-step explanation:

The current market price is a function of future dividend(D1) divided by the difference between the required return and growth rate.