Question

the expected dividend next year is 1.30 and dividends are expected to grow at 5% forever. if the discount rate is 10% what is the value of this promised dividend stream

Answer 1

Answer:

$ 26.00

Step-by-step explanation:

Thinking process:

The present value is given by the following formula:

$PV = \frac{C}{r-g}$

where C = $ 1.30

r = 10 %

g = 5 %

$PV = \frac{1.30}{0.10 - 0.05} \\= 26.00$