Final answer:
To calculate the value of a share of Henley Inc. to an investor who requires a 12% rate of return, we can use the dividend discount model. The value of a share is equal to the present value of its expected future dividends. Given that Henley's last dividend was $1.20 and dividends are expected to grow indefinitely at a rate of 7% per year, the value of a share is $24.
Step-by-step explanation:
To calculate the value of a share of Henley Inc. to an investor who requires a 12% rate of return, we can use the dividend discount model. According to the model, the value of a share is equal to the present value of its expected future dividends.
Given that Henley's last dividend was $1.20 and dividends are expected to grow indefinitely at a rate of 7% per year, we can use the formula V = D / (r - g), where V is the value of the share, D is the dividend, r is the required rate of return, and g is the dividend growth rate.
Plugging in the values, V = $1.20 / (0.12 - 0.07) = $24. Therefore, the value of a share of Henley Inc. to an investor who requires a 12% rate of return is $24.