Question

NoGrowth Industries presently pays an annual dividend of $ 1.90 per share and it is expected that these dividend payments will continue indefinitely. If​ NoGrowth's equity cost of capital is 11​%, then the value of a share of​ NoGrowth's stock is closest​ to: A. $ 20.72 B. $ 19.00 C. $ 17.27 D. $ 13.82

Answer 1

$17.27

Step-by-step explanation:

The stock intrinsic value is calculated using dividend discounted model (DDM). The DDM is stated as below:

Stock intrinsic value = [This year dividend x (1 + Dividend growth)]/[Equity cost of capital - Dividend growth]

= [1.9 x (1 + 0%)]/[11% - 0%] = $17.27

So vlaue of NoGrowth's stock is estimated at $17.27