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Solar Energy will pay an annual dividend of $3.86 per share next year. The company just announced that future dividends will be increasing by 1.6 percent annually. How much are you willing to pay for one share of this stock if you require a rate of return of 11.75 percent?

Respuesta :

Answer:

$38.03

Explanation:

The computation of the willing to pay for one share is shown below:

Value of the stock =  Next year dividend ÷ (Required rate of return - growth rate)

where,

Next year dividend is $3.86 per share

Required rate of return = 11.75%

And, the growth rate is 1.6%

So, the value of the stock is

= ($3.86) ÷ (11.75% - 1.6%)

= ($3.86) ÷ (10.15%)

= $38.03

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