Fast Wheels, Inc. expects to pay an annual dividend of $0.72 next year. Dividends have been growing at a compound annual rate of

Question

3 years ago

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Fast Wheels, Inc. expects to pay an annual dividend of $0.72 next year. Dividends have been growing at a compound annual rate of

6 percent and are expected to continue growing at that rate. What is the value of a share of stock of Fast Wheels to an investor who requires a 14 percent rate of return

Business

1 answer:

brilliants [131] · Answer 1 · 2022-06-14T09:58:53+03:00

Answer:

$9.00

Explanation:

PO == $0.72 / (0.14 - 0.06) = $9.00

The reason for this rate of return and the compound rate of rate have to be divide through by 100% for a proper calculation to get the actual value of a share of stock.

A dividend is a share of profits and retained earnings that a firm pays out to its shareholders. When a company generates a profit and accumulates retained earnings, those earning can be either reinvested in the business or paid out to shareholders as dividend.