Question

Pharsalus Inc. just paid a dividend (i.e., D0) of $ 3.32 per share. This dividend is expected to grow at a rate of 8.0 percent per year forever. The appropriate discount rate for Pharsalus's stock is 9.6 percent. What is the price of the stock

Answer 1

$224.10

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

(3.32 x 1.08) / (0.096 - 0.08) = 224.10