Midwest Agri-Products Corporation offers to sell its sugar substitute to Nice Candies, Inc., only if Nice Candies agrees to buy
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Answer:
Explanation:
The <em>value</em> of a <em>stock</em> equals the flow of the <em>dividends</em> discounted at the expected rate of return.
The formula to calculate the value of a stock when the dividends are expected to <em>grow at a constant rate</em> g, when the expected<em> rate of return</em> is r, is:
Here you know value = $29.00 per share, dividend at the end of the first year = $ 2.45 per share, constant rate at which the dividend is expected to grow r = 6.50%. Then, you can solve for r:
Substitute: