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vovangra [49]
3 years ago
9

Burnett Corp. pays a constant $8.25 dividend on its stock. The company will maintain this dividend for the next 13 years and wil

l then cease paying dividends forever. If the required return on this stock is 11.2 percent, what is the current share price
Business
2 answers:
Valentin [98]3 years ago
6 0

Answer:

$55.134

Explanation:

Given

dividend paid on its stock = $8.25

Duration is next 13 years

P0 = dividend on its stock × (PVIFA of return on this stock,years)

Remember PVIF = (1 - (1 + r)^-n)/r

Where PVIFA = present value interest factor of annuity

r = interest rate per period

n = number of periods

Therefore

P0 = $8.25 × (PVIFA11.2%,13)

P0 = $55.134

Elina [12.6K]3 years ago
4 0

Answer:

$54.99

Explanation:

D = $8.25

R = 11.25

n =13

Perpetuity Formula is to be used

P0 = sum of discounted dividends

      =D/1+r ^n     =8.25/(1.1125)^1+8.25/(1.1125)^2+8.25/(1.1125)^3+8.25/(1.1125)^4+8.25/(1.1125)^5+8.25/(1.1125)^6+8.25/(1.1125)^7+8.25/(1.1125)^8+8.25/(1.1125)^9+8.25/(1.1125)^10+8.25/(1.1125)^11+8.25/(1.1125)^12+8.25/(1.1125)^13

      =$54.99

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