Question

johnson lumber comapnay pays a constant annualk dividend (do) for$3.70 per share. what is one share of this stock worth to youy today if you require a 12 percent rate of return (r)?

Answer 1

The value of one share of Johnson Lumber Company stock, given a constant annual dividend of $3.70 and required rate of return of 12 percent, is calculated to be $30.83 using the Dividend Discount Model.

Step-by-step explanation:

The question is asking to calculate the value of a share of stock when a constant annual dividend is provided and a certain rate of return is required. Using the Dividend Discount Model (DDM), the value of one share of stock can be calculated if the company pays a constant annual dividend. Given that Johnson Lumber Company pays a constant dividend of $3.70 per share (D0), and the required rate of return (r) is 12 percent, the value of one share (P0) can be calculated by the formula: P0 = D0 / r. Plugging the values into the formula gives us P0 = $3.70 / 0.12, resulting in a share value of $30.83.