Question

Spacefood Products will pay a dividend of $ 2.40 per share this year. It is expected that this dividend will grow by 6​% 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 13​%?

Answer 1

$34.29

Step-by-step explanation:

Spacefood will pay a dividend of $2.40 per share

The dividend is expected to grow by 6%

= 6/100

= 0.06

The firm's equity cost of capital is 13%

= 13/100

= 0.13

Therefore, the current value of a single share of spacefood stock can be calculated as follows

Po= dividend/(equity cost of capital-growth rate)

= 2.4/(0.13-0.06)

= 2.4/0.07

= $34.29

Hence the Current value of a single share of Spacefoods's stock is $34.29