Question

Grapevine Co. paid a dividend of $3 on its common stock yesterday. The company's dividends are expected to grow at a constant rate of 9% indefinitely. If the required rate of return on this stock is 13%, compute the current value per share of Grapevine Co. stock.

A. $81.75
B. $47.90
C. $75
D. $56.25

Answer 1

the current value per share of Grapevine Co. stock is $ 81.75

Option A) $ 81.75 is the correct answer

Step-by-step explanation:

Given that;

paid dividend D₀ = $ 3

company's dividends are expected to grow at a constant rate of g = 9% = 0.09

return of stocks r = 13% = 0.13

current value per share of Grapevine Co. stock = ?

Now, to calculate the current value per share of Grapevine Co. stock; we use the expression;

D₀( 1 + g) / ( r - g)

we substitute

current value per share of Grapevine Co. stock = 3( 1 + 0.09) / ( 0.13 - 0.09)

= 3(1.09) / 0.04

= 3.27 / 0.04

= 81.75

Therefore, the current value per share of Grapevine Co. stock is $ 81.75

Option A) $ 81.75 is the correct answer