Question

NoGrowth Corporation currently pays a dividend of per​ quarter, and it will continue to pay this dividend forever. What is the price per share of NoGrowth stock if the​ firm's equity cost of capital is ​?

Answer 1

Answer: $18.88

Step-by-step explanation:

The dividends are being paid quaterly so in other to use those dividends, the cost of capital will have to be converted to a quaterly rate as well.

`( 1 + r )^(4) = 1.124`

r =
`\sqrt[4]{1.124} - 1`

r = 2.966%

Using the Dividend discount model, the price per share is;

= Next Dividend / ( cost of capital - growth rate)

= 0.56 / 0.02966

= $18.88

Note; there is no growth rate as the company will pay that dividend forever.