Question

Railway Cabooses just paid its annual dividend of $5.10 per share. The company has been reducing the dividends by 13 percent each year. How much are you willing to pay today to purchase stock in this company if your required rate of return is 15 percent?

Answer 1

15.85

Step-by-step explanation:

Po = D1 / (k-g)

Po = purchase price,D1 = Dividend in paid in next year,k = required rate of return,g= growth rate

Po = (5.10 (1-0.13)) / (0.15-(-0.13))

Po= 15.85