Question

Metroplex Corporation will pay a $2.50 per share dividend next year. The company pledges to increase its dividend by 4.70 percent per year indefinitely. Required: If you require an 13.80 percent return on your investment, how much will you pay for the company's stock today

Answer 1

Answer: $27.47

Explanation:

Given: Growth rate =  4.70% per year = 0.0470 per year

Dividend of next year = $2.50

Expected rate of return on Stock =  13.80% =0.1380

Current price = (Dividend of next year ) ÷ (Expected rate - Growth rate)

= (2.50)÷ (0.1380-0.0470)

= (2.50) ÷ (0.091)

≈  $27.47

Hence,   you will pay  $27.47 for the company's stock today.