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Suppose a company currently pay an annual dividend of $3.20 on its common stock in a single annual installment, and management plans on raising this dividend by 6 percent per year indefinitely. If the required return on this stock is 12 percent, what is the current share price?

Respuesta :

Answer:

Ans. The current share price is $56.53

Explanation:

In order to find the price of this share, we have to use the following formula.

[tex]Price=\frac{Do(1+g)}{(r-g)}[/tex]

In our case, Do=$3.2; g=6% and r=12%

Therefore

[tex]Price=\frac{3.2(1+0.06)}{(0.12-0.06)}=$56.53[/tex]

Best of luck.

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