Question

You expect KT industries​ (KTI) will have earnings per share of $ 6 this year and expect that they will pay out $ 2.25 of these earnings to shareholders in the form of a dividend. ​ KTI's return on new investments is 13​% and their equity cost of capital is 15​%. The value of a share of​ KTI's stock is closest​ to:

Answer 1

Value of a share = $15

Step-by-step explanation:

According to the dividend valuation model, the value of a share is the present value of expected dividend discounted at the required rate of return.

This model is expressed in the formula below;

Value of a share = D/Ke

D- dividend payable in year one

Ke- cost of equity

Value of a share = 2.25/0.15

Value of a share = $15

Value of a share = $15