MECCS Inc. stock paid its annual dividends of $4.90 per share yesterday. The dividend is expected to decrease at a constant rate

Question

2 years ago

11

MECCS Inc. stock paid its annual dividends of $4.90 per share yesterday. The dividend is expected to decrease at a constant rate

of 2.50 percent per year indefinitely. Investors require a rate of return of 8.60 percent on the stock. How much should one share of the stock be priced today

Business

1 answer:

emmainna [20.7K] · Answer 1 · 2022-07-29T09:48:59+03:00

emmainna [20.7K]2 years ago

7 0

Answer: $43

Explanation:

The current stock price will be calculated as:

= Do(1 - g) / (Ke + g)

where,

Do = $ 4.90

g = 2.50%

Ke = 8.60%

Po = [4.90 - (1 - 0.025)] / [0.086 + 0.025]

Po = 4.7775 / 0.111

Po = $43

The price of one share of the stock today will be $43