Question

Corcoran Corp. pays a constant $7.10 dividend on its stock. The company will maintain this dividend for the next 10 years and will then cease paying dividends forever. If the required return on this stock is 11 percent, what is the current share price

Answer 1

Answer:

Explanation:

Corcoran Corp. pays a constant $7.10 dividend on its stock. The company will maintain this dividend for the next 10 years and will then cease paying dividends forever. If the required return on this stock is 11 percent, what is the current share price

Given that:

Dividend = $7.10 dividend on its stock

Rate r =  11 percent

The company will maintain this dividend for the next 10 years

$\texttt {Current share price}=\texttt {Dividend}\times(\frac{1-(1+r)^{-r}}{r} )$

$=\ 7.10\times(\frac{1-(1+0.11)^{-10}}{0.11} )\\\\=\ 7.10\times(\frac{1-(1.11)^{-10}}{0.11} )\\\\=\ 7.10\times\frac{(1-0.3522)}{0.11}\\\\=\ 7.10\times\frac{0.6478}{0.11}\\\\=\ 7.10 \times5.889\\\\=\ 41.81$