Question

Good Food just paid its annual dividend of $3.28 a share. The firm recently announced that all future dividends will be increased by 3.2 percent annually. What is one share of this stock worth to you if you require a 17 percent rate of return

Answer 1

$24.53

Step-by-step explanation:

Good food pays an annual dividend of $3.28 for one share

The organization plans to increase the future dividend by 3.2%

= 3.2/100

= 0.032

The rate of return is 17%

= 17/100

= 0.17

Therefore, the worth of one share of stock from the firm can be calculated as follows

Po = [3.28×(1+0.032)] / (0.17-0.032)

= (3.28×1.032)/(0.17-0.032)

= 3.3849/0.138

= $24.53

Hence one share of the stock is worth $24.53