Question

Hudson Corporation will pay a dividend of $5.50 per share next year. The company pledges to increase its dividend by 7.30 percent per year indefinitely. If you require a return of 14.70 percent on your investment, how much will you pay for the company's stock today?

Answer 1

Present value of the stock will be $74.324

Step-by-step explanation:

Dividend for the next year
`$5.50\ per\ share`

Growth rate = 7.30 % = 0.073

Required return
`Re=14.70%=0.147`

We have to find the present stock
`P_0`

We know that present value is given by

`P_0=(D_1)/(Re-g)=(5.50)/(0.147-0.073)=$74.324`

So the present value of the stock will be $74.324