Question

Pharoah, Inc., paid a dividend of $4.25 last year. The company's management does not expect to increase its dividend in the foreseeable future. If the required rate of return is 17.0 percent, what is the current value of the stock

Answer 1

Answer:

The current value of the stock is $3.63

Explanation:

The company's management does not expect to increase its dividend in the foreseeable future. It means that the dividend for this years (to be received after 1 years from today) is also $4.24  

Future value (FV): $4.25

Rate: 17%

Present value (PV) = FV/(1+rate)^tenor

= 4.25/(1+17%) = $3.63