Question

Take Time Corporation will pay a dividend of $4.55 per share next year. The company pledges to increase its dividend by 6.5 percent per year, indefinitely. If you require a return of 9 percent on your investment, how much will you pay for the company’s stock today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current stock price $

Answer 1

The correct answer is $182.

Step-by-step explanation:

According to the scenario, the given data are as follows:

Dividend = $4.55

Growth rate = 6.5%

Required rate of return = 9%

So, we can calculate the current stock price by using the following formula:

Current stock price = Dividend ÷ ( Required rate of return - Growth rate)

By putting the value, we get

Current stock price = $4.55 ÷ ( 9% - 6.5% )

= $4.55 ÷ 0.025

= $182