Question

The Nearside Co. just paid a dividend of $1.15 per share on its stock. The dividends are expected to grow at a constant rate of 7 percent per year, indefinitely. Investors require a return of 12 percent on the stock. a. What is the current price

Answer 1

Answer:

$24.61

Explanation:

Nearside corporation paid a dividend of $1.15 per share on their stocks.

The dividend have a growth rate of 7% pet year

= 7/100

= 0.07

The required rate of return on the stock is 12%

= 12/100

= 0.12

Therefore, the current price can be calculated as follows

Po= Do(1+g)/(R-g)

where Do= 1.15, g= 0.07, R= 0.12

Po= 1.15(1+0.07)/(0.12-0.07)

Po= 1.15(1.07)/0.05

Po= 1.2305/0.05

Po= $24.61

Hence the current price is $24.61