Question

Battles, Inc. just paid an annual dividend of $1.20 a share. The dividend will not change next year and then increase by 4 percent annually thereafter.
1. What is the present value of this stock at a discount rate of 9 percent?

Answer 1

Answer:

The price of the stock today is $24

Explanation:

The price of the stock can be calculated using the dividend discount model. The price of the stock will include discounting back future dividends.

P0 = D0*(1+g) / 1+r  + [D*(1+g) / r-g] / 1+r

P0 = 1.2*(1+0) / 1+0.09  +  [1.2(1+0.04) / 0.09-0.04] / 1+0.09

P0 = $24