Question

ZZZ Corporation is issuing Common Stocks that are expected to pay $14 dividend per year and this company is expected to grow at 1% per year. Concurrently, the expected rate of return on stocks with similar risk is 9 % per year. Based on this data, find the pure price per share of common stock issued by ZZZ Corporation. Note: round your answer to two decimal places, and do not include spaces, currency signs, plus or minus signs, nor commas.

Answer 1

The pure price per share of common stock issued by ZZZ is $175

Step-by-step explanation:

According to the given data we have the following:

Expected dividend next year=D1=$14

Growth rate=g=1%

Expected rate of return=r=9%

To calculate the pure price per share of common stock issued by ZZZ Corporation Pure price of share will be equal to PV of all future dividends.

Therefore, Pure price per share=D1/(r-g)

Pure price per share= $14/(9%-1%)=$175