Question

g what should be the current price of a stock if the firm just paid dividend equal to $4.71 per share, the stock has a required return of 20% and a constant dividend growth rate of 6%

Answer 1

$35.66

Step-by-step explanation:

The computation of the current price is shown below:

= Next year dividend ÷ (Required rate of return - growth rate)

where,

Current year dividend would be

= $4.71 + $4.71 × 6%

= $4.71 + 0.2826

= $4.9926

The other items rate would remain the same

Now put these values to the above formula

So, the value would equal to

= $4.9926 ÷ (20% - 6%)

= $35.66