Question

NoGrowth Corporation currently pays a dividend of $ 0.51 per​ quarter, and it will continue to...

NoGrowth Corporation currently pays a dividend of $ 0.51 per​ quarter, and it will continue to pay this dividend forever. What is the price per share of NoGrowth stock if the​ firm's equity cost of capital is 11.7 %​?

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Answer #1

$ 17.44

As per dividend discount model, price of share is the present value of dividends which is calculated as follows:
Price of share = Quarterly dividend / Quarterly discount rate
= $       0.51 / 0.02925
= $    17.44
Working:
Quarterly discount rate = Annual discount rate*1/4
= 11.7%*1/4
= 0.02925
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