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Ksju [112]
3 years ago
5

Tresnan Brothers is expected to pay a $4.00 per share dividend at the end of the year (i.e., D1 = $4.00). The dividend is expect

ed to grow at a constant rate of 3% a year. The required rate of return on the stock, rs, is 9%. What is the stock's current value per share? Round your answer to the nearest cent.
Business
1 answer:
leonid [27]3 years ago
4 0

Answer:

$66.67

Explanation:

Using dividend growth model

P0 = \frac{D1}{Ke-g}

Where P0 = Current market price of share

D1 = Dividend at year end

Ke = Expected return

g = growth percentage

Since D1 has been provided we will take D1 else formula is D0 + g for calculating D1

Putting the values as provided we have

P0 = \frac{4}{0.09-0.03}

=\frac{4}{0.06} = $66.67

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Answer:

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solution

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