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Burkhardt Corp. pays a constant $13.20 dividend on its stock. The company will maintain this dividend for the next 10 years and will then cease paying dividends forever. If the required return on this stock is 12 percent, what is the current share price?

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Answer:

The price of the share today is $74.58

Step-by-step explanation:

The stock is expected to pay a constant dividend after equal intervals of time and for a defined period of time. Thus, this stock's dividend payments can be treated as an annuity. To calculate the value of the stock today, we need to calculate the present value of its dividend payments using the present value of annuity formula.

The present value of annuity can be calculated as shown by the formula in the attachment.

Present value = 13.2 * [(1 - (1+0.12)^-10) / 0.12]

Present value or current share price is = $74.58

Burkhardt Corp. pays a constant $13.20 dividend on its stock. The company will maintain-example-1
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