Question

A company with no growth potential has just paid its annual dividend of $6.52 and it expects no change in future dividends. What is the current price of the company’s share given a discount rate of 17 percent? (to nearest cent; don't include $ sign)

Answer 1

The current price of the company's share, which has paid a $6.52 dividend and expects no change in future dividends with a 17% discount rate, is approximately $38.35.

Step-by-step explanation:

To calculate the current price of a company’s share with no growth potential that has just paid a dividend of $6.52, with no expected change in future dividends, and given a discount rate of 17 percent, we can use the dividend discount model for a perpetuity. The formula for the price of a stock in this scenario is P = D / r, where P is the price of the stock, D is the dividend, and r is the discount rate. In this case, the price would be 6.52 / 0.17, which is approximately 38.353, or when rounded to the nearest cent, 38.35.