Question

Hailey Corporation pays a constant $9. 35 dividend on its stock. The company will maintain this dividend for the next 10 years and will then cease paying dividends forever. If the required return on this stock is 10 percent, what is the current share price

Answer 1

To calculate the current share price of Hailey Corporation, we can use the dividend discount model. The formula for this model is:

P0 = D1 / (r - g)

Where:
P0 = the current share price
D1 = the next year's dividend (which is equal to the current dividend of $9.35)
r = the required rate of return (which is 10% in this case)
g = the expected growth rate of dividends (which is 0% since the company will cease paying dividends after 10 years)

Plugging in the values, we get:

P0 = $9.35 / (0.10 - 0.00)
P0 = $9.35 / 0.10
P0 = $93.50

Therefore, the current share price of Hailey Corporation is $93.50.