Question

A company just paid a dividend of $0.81 per share and you expect the dividend to...

A company just paid a dividend of $0.81 per share and you expect the dividend to grow at a constant rate of 4.1% per year indefinitely into the future. If the required rate of return is 12.4% per year, what would be a fair price for this stock today? (Answer to the nearest penny per share.)

Homework Answers

Answer #1

Current dividend= $0.81

Dividend growth rate= 4.1%

Required return= 12.4%

The question is solved using the dividend discount model.

Price of the stock today=D1/(r-g)

where:

D1=next dividend payment

r=interest rate

g=firm’s expected growth rate

Price of the stock today= $0.81*(1+ 0.041)/ 0.124- 0.0410
                                      = 0.8432/ 0.0830

                                      = $10.16

Therefore, the fair price of the dividend today is $10.16.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A company just paid a dividend of $1.30 per share. The consensus forecast of financial analysts...
A company just paid a dividend of $1.30 per share. The consensus forecast of financial analysts is a dividend of $1.70 per share next year and $2.30 per share two years from now. Thereafter, you expect the dividend to grow 4% per year indefinitely into the future. If the required rate of return is 11% per year, what would be a fair price for this stock today? (Answer to the nearest penny.)
A company has announced that it will pay a dividend of $0.91 per share next year,...
A company has announced that it will pay a dividend of $0.91 per share next year, and thereafter you expect the dividend to grow at a constant rate of 4.3% per year indefinitely into the future. If the required rate of return is 10.4% per year, what would be a fair price for the stock today? (Answer to the nearest penny.)
The Modern Company Limited has just paid a dividend of $1.40 per share. The company is...
The Modern Company Limited has just paid a dividend of $1.40 per share. The company is expanding very fast and is expected to grow at a rate of 25% for the next two years. After year two, the dividend is expected to settle to a constant growth rate of 2% annually into the indefinite future. What is the fair value for one share of the Modern Company stock if the market required rate of return is 12%?
1) The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.48 per share on its stock....
1) The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.48 per share on its stock. The dividends are expected to grow at a constant rate of 7 percent per year indefinitely. Required: (a) If investors require a 13 percent return on The Jackson-Timberlake Wardrobe Co. stock, what is the current price? (b) What will the price be in 8 years? 2) Antiques R Us is a mature manufacturing firm. The company just paid a $5 dividend, but management expects...
Contact Corporation just paid a dividend of $1.50 per share. The company expects that the dividend...
Contact Corporation just paid a dividend of $1.50 per share. The company expects that the dividend will grow at a rate of 10% for the next two years. After year two it is expected that the dividend will decline at a rate of 3% indefinitely. If the required return is 12%, what is the value of a share of stock?
Mack Industries just paid a dividend of $5 per share (D0 = $5). Analysts expect the...
Mack Industries just paid a dividend of $5 per share (D0 = $5). Analysts expect the company’s dividend to grow 7 percent this year (D1 = $5.35) and 5 percent next year.   After two years the dividend is expected to grow at a constant rate of 5 percent.  The required rate of return on the company’s stock is 15 percent.  What should be the company’s current stock price?
IBM just paid a dividend of $1.2 per share. You expect IBM's dividend to grow at...
IBM just paid a dividend of $1.2 per share. You expect IBM's dividend to grow at a rate of 10% per year for the next three years, and then you expect constant dividend growth of 5% forever. Based on the risk of IBM stock, you require a return of 8%. Using the dividend discount model, what is the value of IBM stock?
The Island Tourist Company, Inc. just paid a dividend of $2.75 per share, and that dividend...
The Island Tourist Company, Inc. just paid a dividend of $2.75 per share, and that dividend is expected to grow at a constant rate of 4.25% per year in the future. The company's required rate of return on the stock is 11.50%. At what price should the company's stock sell? Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $123.456 then enter as...
The In-Tech Co. just paid a dividend of $1 per share. Analysts expect its dividend to...
The In-Tech Co. just paid a dividend of $1 per share. Analysts expect its dividend to grow at 25% per year for the next three years and then at a constant growth rate per year thereafter. The estimate of the constant growth rate of dividends is based on the long term return of equity 25% and payout ratio 80%. If the required rate of return on the stock is 18%, what is the current value of the stock? Clearly show...
1. Sky High Co. just paid a dividend of $2.0 per share on its stock. The...
1. Sky High Co. just paid a dividend of $2.0 per share on its stock. The dividends are expected to grow at a constant rate of 2 percent per year indefinitely. If investors require an 8.6 percent return on Sky High Co. stock, the current price is $ _________ . Round it to two decimal places 2. Sky High Co. just paid a dividend of $4.6 per share on its stock (D0). The dividends are expected to grow at a...