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lesya692 [45]
3 years ago
9

Braxton's Cleaning Company stock is selling for $33.25 per share based on a required return of 11.7 percent. What is the the nex

t annual dividend if the growth rate in dividends is expected to be 4.5 percent indefinitely?
Business
1 answer:
4vir4ik [10]3 years ago
6 0

Answer:

So, the next annual dividend will be $2.394

Explanation:

The constant growth model of DDM is used to calculate the price of a stock today whose dividend growth rate is expected to be constant forever. The price of such a stock is calculated using the formula for price under the constant growth model of DDM,

P0 = D1 / (r - g)

Where,

  • P0 is price today
  • D1 is the next annual dividend that will be paid by the stock
  • r is the required rate of return
  • g is the growth rate in dividends

To calculate the next annual dividend, we will input the available values for P0, r and g in the formula,

33.25 = D1 / (0.117 - 0.045)

33.25 * (0.072) = D1

2.394 = D1

So, the next annual dividend will be $2.394

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