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Mrac [35]
3 years ago
9

XCEL Corporation paid a dividend yesterday for $1.50. They expect to pay dividends annually at a constant 6 percent annual growt

h rate indefinitely. If the required rate of return on this investment is 12 percent, what is the current value of this common stock?
Business
1 answer:
serious [3.7K]3 years ago
6 0

Answer:

$26.50

Explanation:

The computation of the current value of the common stock is shown below:

Current price is

= Current year dividend ÷ (Required rate of return - Growth rate)

where

Current year dividend is $1.59

The Required rate of return is 12%

ANd, the growth rate is 6%

Now place these values to the above formula

So, the current price of the common stock is

= ($1.50 × 1.06) ÷ (0.12 - 0.06)  

= $1.59 ÷ 0.06

= $26.50

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Answer:

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