Question

Spacefood Products will pay a dividend of $ 2.25 $2.25 per share this year. It is expected that this dividend will grow by 3 3​% per year each year in the future. What will be the current value of a single share of​ Spacefood's stock if the​ firm's equity cost of capital is 10 10​%?

Answer 1

$32.14 per share

Step-by-step explanation:

The computation of the current value of the single share is shown below:

= Current year dividend ÷ (Required rate of return - growth rate)

where,

Current year dividend is $2.25 per share

Required rate of return is 10%

And, the growth rate is 3%

So by placing these items, the current value is

= $2.25 ÷ (10% - 3%)

= $32.14 per share