Question

Poulter Corporation will pay a dividend of $3.25 per share next year. The company pledges to increase its dividend by 5.1 percent per year, indefinitely. If you require a return of 11 percent on your investment, how much will you pay for the company’s stock today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Price of stock = $55.08

Step-by-step explanation:

The price of a stock is the present value of the future dividends discounted at the required rate of return.

P = D/(r-g)

P-price of stock today, D- Dividend in year's time, r- required rate of return,

g- growth rate in dividend

Using the following parameters:

P =?, r- 11%, g- 5.1%

P = 3.25/(0.11-0.051)

P = 55.08474576

Price of stock = $55.08