Question

Apocalyptica Corp. pays a constant $1.53 dividend on its stock. The company will maintain this dividend for the next 13 years and will then cease paying dividends forever.  If the required return on this stock is 9 percent, what is the current share price? Answer with 2 decimals (e.g. 45.45).

Answer 1

- Apocalyptica Corp. pays a constant $1.53 dividend on its stock and will pay the same for the next 13 years. Thereafter, it will cease to pay the dividend i,e., no dividedn after 13 years.

Calculating the Current Price of Stock using Present Value of annuity formula as same dividend is been paid for 13 years:-

Where, C= Annual dividend = $1.53

r = required return on stock = 9%

n= no of periods = 13 years

Present Value = $11.45

So, the current share price is $11.45

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