Bui Corp. pays a constant $14.70 dividend on its stock. The company will maintai

Question

Bui Corp. pays a constant $14.70 dividend on its stock. The company will maintain this dividend for the next ten years and will then cease paying dividends forever.

If the required return on this stock is 11 percent, what is the current share price?

Bui Corp. pays a constant $14.70 dividend on its stock. The company will maintain this dividend for the next ten years and will then cease paying dividends forever.

If the required return on this stock is 11 percent, what is the current share price?

Explanation / Answer

The PV factor of an ordinary annuity for 10 years with the dividend payments made at the end of the year is 5.889232. Therefore the value of this stock is:

$14.70 x 5.889232 = $86.57.

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