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Suppose cyclone industrial inc will pay a dividend of 1.65 per share next year. The require return on the stock is 8% and its dividends will grow by 2% per year indefinitely. What is the stock price today?
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26 votes
26 votes
Suppose cyclone industrial inc will pay a dividend of 1.65 per share next year. The require return on the stock is 8% and its dividends will grow by 2% per year indefinitely. What is the stock price today?

User Licht
by
3.1k points

1 Answer

14 votes
14 votes

Answer:

$27.50

Step-by-step explanation:

according to the constant dividend growth model

price = d1 / (r - g)

d1 = next dividend to be paid

r = cost of equity

g = growth rate

$1.65 / ( 0.08 - 0.02) = $27.50

User Weissvonnix
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2.5k points
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