Question

Take Time Corporation will pay a dividend of $4.15 per share next year. The company pledges to increase its dividend by 6.25 percent per year, indefinitely. If you require a return of 9 percent on your investment, how much will you pay for the company’s stock today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current stock price

Answer 1

stock value = $ 150.91

Explanation:

Stock price = D /(k-g)

The given data is as follows:

D = Dividend = $4.15 , K = required percent = 9% = 0.09 , G = pledged percent = 6.25% = 0.0625

The following formula is used in order to calculate the value of the stock:

Stock value= D/(k-g)

Where: D = dividend, K = required return, g = growth

$=4.15 /(0.09-0.0625)$ =150.91(rounded to the two decimal places)

Hence stock value = $ 150.91