Railway Cabooses just paid its annual dividend of $1.90 per share. The company h
ID: 2651588 • Letter: R
Question
Railway Cabooses just paid its annual dividend of $1.90 per share. The company has been reducing the dividends by 11.4 percent each year. How much are you willing to pay today to purchase stock in this company if your required rate of return is 12 percent?
Railway Cabooses just paid its annual dividend of $1.90 per share. The company has been reducing the dividends by 11.4 percent each year. How much are you willing to pay today to purchase stock in this company if your required rate of return is 12 percent?
Explanation / Answer
Annual Dividend: $1.90
Dividend reduced by 11.4%
required rate of retrun = 12%
Price = Annual Dividend * (1+g)/ke- (g)
=1.90* (1+(-11.4%)/(12%-(-11.4%)
=1.6834/.234
=$7.19
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