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DanielleElmas [232]
3 years ago
5

The Impulse Shopper recently paid an annual dividend of $1.13 per share. The company just announced that it is suspending all di

vidend payments on its common stock for the next five years. After that, the company expects to pay $.50 a share at the end of each year. At a required return of 18 percent, what is this stock worth today?
Business
1 answer:
vivado [14]3 years ago
5 0

Answer:

Stock value today = $1.21

Explanation:

Current Dividend = D{_0} = $1.13

After 5 years that is D{_6} = $0.50

Since expected growth = 0

Therefore

P{_5} = D{_6} / Ke = 0.5/18% = $2.77

Its present value will be \frac{1}{(1 + 0.18){^5}} X 2.77 = $1.21

Stock value today = $1.21

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