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just olya [345]
3 years ago
11

What is the stock price per share for a stock that has a required return of 12%, an expected annual dividend of $3.15 per share

in the first year, and a constant (sustainable) growth rate of dividends of 8%
Business
1 answer:
Simora [160]3 years ago
5 0

Answer:

Price per share = $78.75

Explanation:

<em>The Dividend Valuation Model is a technique used to value the worth of an asset. According to this model, the worth of an asset is the sum of the present values of its future cash flows discounted at the required rate of return.</em>

If dividend is expected to grow at a given rate , the value of a share is calculated using the formula below:

Price=Do (1+g)/(k-g)  

Where Do- Dividend now, g- growth rate, k- required rate of return(cost of equity)

<em>Note Do (1+g) represents the expected dividend in the first year</em>

DATA:

Do (1+g) = 3.15

g= 8%

k= 12%

Price per share = 3.15/(0.12- 0.08) = $78.75

Price per share = $78.75

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Given that the supply of a commodity decreases while the demand remains same.

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Demand is the amount of good that the consumer wants to consume.

When the supply of a commodity decreases,the supply will shift leftwards. The demand remains same then from the graph we can find that the price of the commodity increases from P to P1.

Hence when the supply of a commodity decreases while demand remains same then the same price tends to increase.

Learn more about supply at brainly.com/question/25843620

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