Question

Symon's Suppers Co. has announced that it will pay a dividend of $4.23 per share one year from today. Additionally, the company expects to increase its dividend by 4.4 percent annually. The required return on the company's stock is 10.6 percent. What is the current share price?

Answer 1

Answer:

$68.23

Explanation:

In this question, we apply the dividend growth rate model which is shown below:

The computation of the current share price is shown below:

= (Current year dividend) ÷ (Rate of return on company stock - growth rate)

= ($4.23) ÷ (10.6% - 4.4%)

= ($4.23) ÷ (6.2%)

= $68.23

We simply find out the ratio between the current year dividend per share and difference between the rate of return and the growth rate