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Bezzdna [24]
3 years ago
13

Burnett Corp. pays a constant $8.45 dividend on its stock. The company will maintain this dividend for the next 15 years and wil

l then cease paying dividends forever. If the required return on this stock is 13 percent, what is the current share price?
Business
1 answer:
just olya [345]3 years ago
6 0

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%

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Hence, Operating cycle = 7.3+9.6

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It has an direct relationship with the level of working capital required. The higher the operating cycle, the higher the working capital investment required to keep the operation running.

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3 years ago
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