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sineoko [7]
3 years ago
13

a mature manufacturing firm. The company just paid a dividend of $8.65, but management expects to reduce the payout by 5 percent

per year indefinitely. If you require a return of 12 percent on this stock, what will you pay for a share today?
Business
1 answer:
-BARSIC- [3]3 years ago
4 0

Answer:

$48.34%

Explanation:

Data provided in the question

Growth rate = 5%

Required return = 12%

Dividend = $8.65

Based on the above information,

The computation of the current price is shown below:-

Current Price = Dividend × (1 + Growth Rate) ÷ (Required Return - Growth Rate)

= $8.65 × (1 + (-5%)) ÷ (12% - (-5%))

= $48.34%

Therefore for computing the current price we simply applied the above formula.

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