Nofal Corporation will pay a $4.60 per share dividend next year. The company ple

Question

Nofal Corporation will pay a $4.60 per share dividend next year. The company pledges to increase its dividend by 6.75 percent per year, indefinitely.

If you require a return of 11 percent on your investment, how much will you pay for the company’s stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Nofal Corporation will pay a $4.60 per share dividend next year. The company pledges to increase its dividend by 6.75 percent per year, indefinitely.

Explanation / Answer

Answer:

Calculation of Current Stock Price :

Current Stock Price = D1 / (Ke-g)

D1 = Expected Dividend = $4.60

Ke= Required rate of return = 11% = 0.11

g= growth rate =6.75% = 0.0675

Hence Current Stock Price = 4.60 / (0.11-0.=675)

=$108.24

Related Questions

Navigate

• Browse (All)
• Browse N
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.