Question

A company earned $7 per share in the year that just ended. the company has no more growth opportunities. the company has a 13 percent return on equity and a 13 percent cost of equity. do not round intermediate calculations. round your answers to the nearest cent.

Answer 1

The value of the company's stock is $53.85 per share.

Step-by-step explanation:

A company earned $7 per share in the year that just ended. Since the company has no more growth opportunities and a 13 percent return on equity and a 13 percent cost of equity, we can use the Gordon Growth Model to determine the value of the company's stock. The Gordon Growth Model formula is:

Stock Price = Dividends per Share / (Cost of Equity - Growth Rate)

Since the company has no growth opportunities, the growth rate is 0. Plugging in the values:

Stock Price = $7 / (0.13 - 0)

Stock Price = $7 / 0.13

Stock Price = $53.85

Therefore, the value of the company's stock is $53.85 per share.