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asambeis [7]
3 years ago
7

Free Motion Enterprises paid a $2.20 per share annual dividend last week. Dividends are expected to increase by 3.75 percent ann

ually. What is one share of this stock worth to you today if your required rate of return is 15 percent?
Business
1 answer:
Tems11 [23]3 years ago
6 0

Answer:

$20.29

Explanation:

The computation of the today share price is shown below:

= Next year dividend ÷ (Required rate of return - growth rate)

where,

Next year dividend

= $2.20 + $2.20 × 3.75%

= $2.20 + 0.0825

= $2.2825

The other items values would remain the same

So, the today price would be

= $2.2825 ÷ (15% - 3.75%)

= $2.2825 ÷ 11.25%

= $20.29

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If you own a business, the loan payment, rent, and your salary are examples of "
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