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Anarel [89]
3 years ago
14

Burnett Corp. pays a constant $8.75 dividend on its stock. The company will maintain this dividend for the next 10 years and wil

l then cease paying dividends forever. If the required return on this stock is 12 percent, what is the current share price
Business
1 answer:
goldfiish [28.3K]3 years ago
5 0

Answer: $49.44

Explanation:

The current share price will be calculated as follows:

Dividend = $8.75

Required return rate = 12%

Number of years, N = 10

Then, the present value annuity for 10 years will be calculated as:

= (1 - (1+r)^-n) / r

= (1 - (1+12%)^-10) / 12%)

= $5.65

Then, the current share price will be:

= Dividend × present value annuity for 10 yrs

= $8.75 × 5.65

= $49.44

Therefore, the current share price is $49.44.

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