Question

NoGrowth Industries presently pays an annual dividend of $ 1.50 per share and it is expected that these dividend payments will continue indefinitely. If​ NoGrowth's equity cost of capital is 12​%, then the value of a share of​ NoGrowth's stock is closest​ to:

Answer 1

$12.5

Step-by-step explanation:

Given that,

Annual dividend paid = $1.50 per share

Equity cost of capital = 12​%

The value of a share of​ NoGrowth's stock is determined by dividing the annual dividend paid by the equity cost of capital of the firm.

Value of share:

= Annual dividend paid ÷ Equity cost of capital

= $1.50 per share ÷ 0.12

= $12.5

Therefore, the value of a share of​ NoGrowth's stock is closest​ to $12.50.