NoGrowth Industries presently pays an annual dividend of $ 1.90 per share and it is expected that these dividend payments will c

Question

2 years ago

5

NoGrowth Industries presently pays an annual dividend of $ 1.90 per share and it is expected that these dividend payments will c

ontinue indefinitely. If NoGrowth's equity cost of capital is 11%, then the value of a share of NoGrowth's stock is closest to: A. $ 20.72 B. $ 19.00 C. $ 17.27 D. $ 13.82

Business

1 answer:

dybincka [34] · Answer 1 · 2022-07-07T09:00:39+03:00

Answer:

$17.27

Explanation:

The stock intrinsic value is calculated using dividend discounted model (DDM). The DDM is stated as below:

Stock intrinsic value = [This year dividend x (1 + Dividend growth)]/[Equity cost of capital - Dividend growth]

= [1.9 x (1 + 0%)]/[11% - 0%] = $17.27

So vlaue of NoGrowth's stock is estimated at $17.27