Question

Upland Motors recently paid a $1.48 per share annual dividend. Dividends are expected to increase by 2.5 percent annually. What is one share of this stock worth today if the appropriate discount rate is 14 percent?

Answer 1

$13.19

Step-by-step explanation:

Data given

Annual dividend = $1.48

Increase percentage annually = 2.5%

Discount rate percentage = 14%

The computation of price is shown below:-

Price = Dividend ÷ (Cost of equity - Growth rate)

= ($1.48 × 1.025) ÷ (0.14 - 0.025)

= $1.517 ÷ 0.115

= $13.19

Therefore for computing the price we simply applied the above formula.