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APCE common stock just paid a dividend of $1.00 per share, but its dividend is expected...

APCE common stock just paid a dividend of $1.00 per share, but its dividend is expected to grow at 10 percent per year for four years and then grow at 6 percent per year forever. How much should you be willing to pay for the APCE stock? Assume 12% required return.

20.24

27.29

16.62

25.83

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Answer #1

- Dividend just paid(D0) = $1

Dividend is expected to grow for first 4 years at(g) = 10% per year

Dividend growth rate therafter(g1) = 6% per year forever

Required rate of return(ke) = 12%

Calculating teh current price of stock:-

P0 = 0.9821+0.9646+0.9474+0.9305+16.4382

P0 = $20.26

So, amount you be willing to pay for the APCE stock is $20.24

Option 1

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