Answer:
$85.71
Explanation:
To calculate the price to pay for the stock of Hudson Corporation, we use the dividend discount model formula stated as follows:
P = Next year dividend ÷ (r - g) ................................ (1)
Where,
P = stock price today = ?
Next year dividend = $3.00
r = required return = 7.10% % = 0.071
g = dividend growth rate = 3.60% = 0.036
These above values are now substituted into equation (1) as follows:
P = 3 ÷ (0.071 - 0.036) = 3 ÷ 0.035 = $85.71
Therefore, I will pay $85.71 for Hudson Corporation's stock today.
