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andre [41]
3 years ago
11

Zephyr Electricals is a company with no growth potential. Its last dividend payment was $4.50, and it expects no change in futur

e dividends. What is the current price of the company’s stock given a discount rate of 9 percent?
Business
1 answer:
VARVARA [1.3K]3 years ago
6 0

Answer: $50

Explanation:

We can use the Gordon Growth Model of Stock Valuation. The formula is thus,

P = D1 / r – g

D1 = the annual expected dividend of the next year

r = rate of return

g = the expected dividend growth rate (assumed to be constant)

There is no growth potential and dividends are expected to stay the same so no growth rate and D1 will be the same as D0.

Plugging that into the formula therefore will give us

P = D1/r

P= 4.5/0.09

= $50

Current Stock Price is $50.

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3 0
3 years ago
Read 2 more answers
"Net income for the period was $200,000. The retained earnings account had a beginning balance of $25,000. If the company paid d
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Answer:

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