MMK Cos. normally pays an annual dividend. The last such dividend paid was $3.05
ID: 2753267 • Letter: M
Question
MMK Cos. normally pays an annual dividend. The last such dividend paid was $3.05, all future dividends are expected to grow at a rate of 8 percent per year, and the firm faces a required rate of return on equity of 14 percent. If the firm just announced that the next dividend will be an extraordinary dividend of $25.80 per share that is not expected to affect any other future dividends, what should the stock price be? (Do not round intermediate calculations and round your final answer to 2 decimal places.)
Explanation / Answer
As per Dividend Growth Model, P0=D0 (1 + g) / (R - g)
Thus, stock price = 3.05 (1+0.08) / (0.14 - 0.08)
= 3.294 / 0.06 = $54.90
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.