Question

g The CI Corp. has just paid a cash dividend of $2 per share. If investors require 16% return from investments such as this and the dividend is expected to grow at a steady 8% per year, what is the current value of the stock

Answer 1

the current value of the stock is $27

Step-by-step explanation:

The computation of the current value of the stock is shown below:

But before that first determine the following things

Expected dividend is

= $2 × (1 + 8%)

= $2.16

And,

Required return on investment (r) = 16%

Growth rate (g) = 8%

So,

The current value of the stock is

= D1 ÷ (r-g)

= $2.16 ÷ (16% - 8%)

= $27

hence, the current value of the stock is $27