Question

Biogenetics, Inc. plans to retain and reinvest all of their earnings for the next 30 years. Beginning in year 31, the firm will begin to pay a $30 per share dividend. The dividend will not subsequently change. Given a required return of 18%, what should the stock sell for today?

Answer 1

Answer:

the stock sell for today is $1.16

Explanation:

The calculation of the stock sell for today is as follows;

Value after year 31 is

= (D31 ÷ Required return)

= $30 ÷ 0.18

= $166.666667

Now the current value is  

= Future dividend and value × Present value of discounting factor(rate%,time period)

= $30 ÷ 1.18^31 + $166.666667 ÷ 1.18^31

= $1.16

Hence, the stock sell for today is $1.16

We simply applied the above formula so that the correct value could come

And, the same is to be considered