Question

Summit Systems will pay a dividend of $ 1.48 one year from now. If you expect​ Summit's dividend to grow by 6.4 % per​ year, what is its price per share if its equity cost of capital is 10.2 %​?

Answer 1

$36.84

Step-by-step explanation:

The computation of the price per share is shown below:

Price per share = (Dividend) ÷ (Equity cost of capital - growth rate)

where,

Dividend one year from now is $1.48

Equity cost of capital = 10.2%

And, the growth rate is 6.4%

So, the price per share is

= ($1.48) ÷ (10.2% - 6.4%)

= ($1.48) ÷ (3.8%)

= $36.84