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Braxton's Cleaning Company stock is selling for $34.50 per share based on a required return of 10.2 percent. What is the the next annual dividend if the growth rate in dividends is expected to be 4 percent indefinitely?

Respuesta :

Edufirst

Answer:

  • $2.14

Explanation:

The formula for the current price, P₀, of a stock that will pay annual dividends starting next year with D₁, with a constant annual growing rate, g, to perpetuity (indefinitely), for which is required a return of r percent, is:

           [tex]P_0=\dfrac{D_1}{r-g}[/tex]

Substitute and solve for D₁, the next annual dividend:

         [tex]\$34.50=\dfrac{D_1}{0.102-0.04}\\\\\\\D_1=\$34.50\times 0.062 =\$2.14[/tex]

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