Question

Lee Hong Imports paid a $1.00 per share annual dividend last week. Dividends are expected to increase by 5 percent annually. What is one share of this stock worth to you today if the appropriate discount rate is 14 percent

Answer 1

$11.67

Step-by-step explanation:

Here, we are asked to calculate the present worth of some amount of shares today given the discount rate and some other information.

To calculate this, we have to proceed mathematically

The present amount = (Amount paid per share dividend) * (1 + annual increment)/(discount rate - annual increment)

From the question, we identify these values as;

Amount paid per share dividend = $1

Annual increment = 5% or 0.05

Discount rate = 14% or 0.14

Plugging these values we have;

Po=$1*(1+0.05)/(0.14-0.05)

Po=$11.67