Question

Three Corners Markets paid an annual dividend of $1.42 a share last month. Today, the company announced that future dividends will be increasing by 1.3 percent annually. If you require a return of 14.6 percent, how much are you willing to pay to purchase one share of this stock today

Answer 1

Answer:

$10.82%

Explanation:

The computation of stock value is shown below:-

First we need to find out the expected dividend for computing the stock value

So, Expected dividend = $1.42 × (1 + 1.3%)

= $1.44

Now, Stock value = Expected dividend ÷ (Required return - Growth rate)

= $1.44 ÷ (14.6% - 1.3%)

= $1.44 ÷ 13.3%

= $10.82%

So, for computing the stock value we simply applied the above formula.