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icang [17]
3 years ago
15

Hudson Corporation will pay a dividend of $2.78 per share next year. The company pledges to increase its dividend by 4.5 percent

per year indefinitely. If you require a return of 15 percent on your investment, how much will you pay for the company’s stock today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Business
1 answer:
DanielleElmas [232]3 years ago
7 0

Answer:

You need to pay $26.47. The further explanation is given below.

Explanation:

The given values are:

Dividend

D_1 = $2.78\ per  share

Required rate of return

k_e = 0.15

Dividend's growth rate

g = 0.045

Now,

The stock price will be:

= \frac{2.78}{0.15-0.045}

= \frac{2.78}{0.105}

= 26.47

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Answer:

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