Question

Hudson Corporation will pay a dividend of $5.50 per share next year. The company pledges to increase its dividend by 7.30 percent per year indefinitely. If you require a return of 14.70 percent on your investment, how much will you pay for the company's stock today?

Answer 1

Answer:

Present value of the stock will be $74.324

Explanation:

Dividend for the next year $5.50\ per\ share$

Growth rate = 7.30 % = 0.073

Required return $Re=14.70%=0.147$

We have to find the present stock $P_0$

We know that present value is given by

$P_0=\frac{D_1}{Re-g}=\frac{5.50}{0.147-0.073}= 74.324$

So the present value of the stock will be $74.324