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Co. paid a $0.632 dividend per share in 2013, which grew to $0.76 in 2016. This growth is expected to continue. What is the value of this stock at the beginning of 2017 when the required return is 8.7 percent? (LG8-5)

Respuesta :

Answer:

$34.22

Explanation:

The computation is shown below:

Value of the stock = Next year dividend ÷ (Required rate of return - growth rate)

where,  

Growth rate equal to

= {($0.76 ÷ $0.632)^1 ÷ 3} - 1

= 6.34%

And, Next year dividend would be

= $0.76 × (1 + 6.34%)

= $0.81

So, the value of the stock would equal to

= 0.81% ÷ (8.70% - 6.34%)

= $34.22

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