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ki77a [65]
3 years ago
12

Metroplex Corporation will pay a $2.50 per share dividend next year. The company pledges to increase its dividend by 4.70 percen

t 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
Business
1 answer:
postnew [5]3 years ago
7 0

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.

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