Question

Tresnan Brothers is expected to pay a $2.95 dividend on its common stock at at the end of this year. This company's dividends are expected to grow at a constant rate of 4% per year. If the required rate of return on the stock is 8.45%, what is the stock's current value per share? (your answer should be to two decimal places)

Answer 1

current value = $66.29

Step-by-step explanation:

given data

expected to pay dividend = $2.95

constant rate = 4% per year

required rate of return = 8.45%

solution

Stock's current value per share will be express as

current value = dividend ÷ (Required rate of return - Growth rate of dividend) .....................1

put here value and we get

current value = $2.95 ÷ ( 8.45% - 4% )

current value = $66.29