Question

Tresnan Brothers is expected to pay a $1.1 per share dividend at the end of the year (i.e., D1 = $1.1). The dividend is expected to grow at a constant rate of 4% a year. The required rate of return on the stock, rs, is 15%. What is the stock's current value per share? Round your answer to two decimal places.

Answer 1

$10

Step-by-step explanation:

Given that,

Expected Dividend paid per share, D1 = $1.10

Growth rate of dividend = 4% a year

Required rate of return on the stock, rs = 15%

Stock's current value per share:

= D1 ÷ (Required rate of return - Growth rate of dividend)

= $1.1 ÷ (0.15 - 0.04)

= $1.1 ÷ 0.11

= $10

Therefore, the stock's current value per share is $10.