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Evgen [1.6K]
3 years ago
14

Precision Engineering recently announced that its next annual dividend will be $1.20 per share with later dividends increasing b

y 2.5 percent annually. What is the current value of this stock to you if you require a 12 percent rate of return?
Business
1 answer:
Alexus [3.1K]3 years ago
3 0

Answer:

The current value of the  stock  is $12.63

Explanation:

price of a share

P_{t} = \frac{D_{t} }{R - g}  ... 1  

                                     where, P_{t} = price of a stock at t years

                                      D_{t} = dividend at year t

                                       R= rate of return from market

                                       g = growth rate of dividend

substituting into equation 1

P_{t} = $1.2 ÷ 12% - 2.5%

    = $1.2 ÷ 0.095

    = $12.6316

     = $12.63

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