Question

I'M'Cool Co. paid a dividend of $5.25 on its common stock yesterday. The company's dividends are expected to grow at a constant rate of 8.5% indefinitely. If the required rate of return on this stock is 15.5%, compute the current value per share of I'M'Cool Co. stock. Group of answer choices $43.90 $76.43 $56.23 $81.38

Answer 1

$81.38

Step-by-step explanation:

The share price formula using the constant dividend growth model is provided below:

share price=expected dividend/( required rate of return-constant dividend growth rate)

the share price is the unknown

expected dividend=last dividend*(1+constant dividend growth rate)

last dividend=$5.25

constant dividend growth rate=8.5%

expected dividend=$5.25*(1+8.5%)=$5.69625

required rate of return=15.5%

share price=$5.69625 /(15.5%-8.5%)

share price=$5.69625 /7.00% =$81.38