Question

Future Motors is expected to pay a $3.30 a share annual dividend next year. Dividends are expected to increase by 3.75 percent annually. What is one share of this stock worth to you today if your required rate of return is 22 percent

Answer 1

One share of this stock worth to you today is $18.08

Step-by-step explanation:

According to the question, we have the following data:

D1 = $3.30

g = 0.0375

Ke = 0.22

one share of this stock worth to you today = P0

Hence to calculate the P0 we have to use the following formula:

Ke = D1/P0 + g

0.22 = 3.3/P0 + 0.0375

P0 = $18.08

One share of this stock worth to you today is $18.08