Question

Assume that at the end of the next year, Company A will pay a $2.00 dividend per share, an increase from the current dividend of $1.50 per share. After that, the dividend is expected to increase at a constant rate of 5 percent. If you require a 12% return on the stock, what is the value of the stock?

Answer 1

the value of the stock is $28.57

Step-by-step explanation:

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

Value for the stock is

= Dividend for next period ÷ (Required return - Growth rate)

= $2 ÷ (0.12 - 0.05)

= $28.57

hence, the value of the stock is $28.57

We simply applied the above formula so that the value of the stock could come and the same is to be considered