Question

Take Time Corporation will pay a dividend of $4.10 per share next year. The company pledges to increase its dividend by 6 percent per year, indefinitely. If you require a return of 10 percent on your investment, how much will you pay for the company's stock today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current stock price $

Answer 1

Answer:

So the current stock price will be $102.5

Explanation:

We have given that next year dividend $D_1= 4.10$

Growth rate = 6 % = 0.06

Required return Ke = 10% = 0.01

We have to find the company current stock price

We know that current stock price is given by

$P_0=\frac{D_1}{Ke-g}=\frac{4.10}{0.1-0.06}= 102.5$

So the current stock price will be $102.5