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Company XYZ is expected to pay a cash dividend of $0.50 per share at the end...

Company XYZ is expected to pay a cash dividend of $0.50 per share at the end of this year. Investors require a 15% return. If the dividend is expected to grow at a steady 6% per year, what is the current value of a share?

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Answer #1

Answer:

The formula for Current value of a share is given by :-

Current value of a share = D1 / ( r - g )

where, D1= Expected Divident per share

r = Required rate of return

g = Growth rate

The following informations were given in the problem:-

Expected divident per share =  $0.50

Required rate of return =  15% = 0.15

Growth rate = 6% = 0.06

Current value of a share = 0.50 / ( 0.15 - 0.06)

= 5.56

Therefore, Current value of a share is 5.56

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