Question

Stoneheart Group is expected to pay a dividend of $2.95 next year. The company's dividend growth rate is expected to be 4.4 percent indefinitely and investors require a return of 10.6 percent on the company's stock. What is the stock price?

a. $34.73
b. $26.75
c. $37.76
d. $32.90
e. $36.56

Answer 1

$47.58

Step-by-step explanation:

The computation of the stock price is shown below:

Provided that

Next year dividend = $2.95

Growth rate = 4.4%

Required rate of return is 10.6%

So, the stock price is

= Next year dividend ÷ (Required rate of return - growth rate)

= $2.95 ÷ (10.60% - 4.4%)

= $2.95 ÷ 6.2%

= $47.58

This is the answer but the same is not mentioned in the given options