Question

Tresnan Brothers is expected to pay a $3.00 per share dividend at the end of the year (i.e., D₁ = $3.00). The dividend is expected to grow at a constant rate of 9% a year. The required rate of return on the stock, rs, is 17%. What is the stock's current value per share? Round your answer to the nearest cent.

Answer 1

The current value per share of Tresnan Brothers stock is $37.50.

Step-by-step explanation:

To calculate the current value per share of Tresnan Brothers stock, we can use the constant growth dividend valuation model. The formula for this model is P = D₁ / (rs - g), where P is the stock's current value per share, D₁ is the dividend expected at the end of the year, rs is the required rate of return on the stock, and g is the constant growth rate of the dividend.

In this case, we have D₁ = $3.00, rs = 17%, and g = 9%.

Plugging in these values into the formula, we get P = $3.00 / (0.17 - 0.09) = $3.00 / 0.08 = $37.50.

Therefore, the stock's current value per share is $37.50.