Question

Burnett Corp. pays a constant $8.45 dividend on its stock. The company will maintain this dividend for the next 15 years and will then cease paying dividends forever. If the required return on this stock is 13 percent, what is the current share price?

Answer 1

Answer:

56.47% is the current share price

Explanation:

To solve this question, we use the mathematical approach.

First, we calculate the current share price =

$8.45*Present value of annuity factor(11.2%,13)

But before we can get the value for the current share price, we need the value for the present value of annuity factor.

Present value of annuity factor = Annuity[1-(1+interest rate)^-time period]/rate =

8.45[1-(1.112)^-13]/0.112=

= $8.45*6.682519757 = 56.47%