Question

Stoneheart Group is expected to pay a dividend of $3.25 next year. The company's dividend growth rate is expected to be 3.5 percent indefinitely and investors require a return of 12.1 percent on the company's stock. What is the stock price

Answer 1

$37.79

Step-by-step explanation:

The computation of the stock price is shown below:

Data given in the question

Next year dividend = $3.25

Growth rate = 3.5%

Required rate of return = 12.1%

So, the stock price is

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

= $3.25 ÷ (12.1% - 3.5%)

= $3.25 ÷ 8.6%

= $37.79

We simply apply the above formula to find out the stock price