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daser333 [38]
3 years ago
9

The Back Room just paid an annual dividend of $1.50 a share. The firm expects to pay dividends forever and to increase the divid

end by 4.5 percent annually. What is the expected value of this stock six years from now if the discount rate is 12 percent
Business
1 answer:
umka2103 [35]3 years ago
6 0

Answer:

$26.05

Explanation:

according to the constant dividend growth model

price = d1 / (r - g)

d1 = next dividend to be paid = d0 x (1 + growth rate)

d0 = dividend that was just paid

r = cost of equity

g = growth rate

1.5 x (1.045^6) / 12 - 4.5 = $26.05

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