Question

JEN Corp. is expected to pay a dividend of $4.75 per year indefinitely. If the appropriate rate of return on this stock is 8 percent per year, and the stock consistently goes ex-dividend 20 days before dividend payment date, what will be the expected maximum price in light of the dividend payment logistics?

Answer 1

The expected maximum price in light of the dividend payment logistics according to the dividend discount model will be $59.375

Step-by-step explanation:

Using the dividend discount model given by the formula P = D/(r+g) where

P = Price

D = Dividend

r = rate of return

g = growth

The expected maximum price can be calculated as P = 4.75/ (0.08 + 0) = $59.375.

This means that if JEN Corp is expected to pay a dividend of$4.75 every year, the price of its share will be valued at $59.375.