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FinanceIsFun just paid a dividend of $1.55 on each share of its stock. The company expects that the dividends will increase at a constant rate of 6 percent per year in perpetuity. Investors require a 14 percent return on this company's stock.Calculate the current stock price.

Respuesta :

Answer:

$21

Explanation:

The computation of the current stock price is shown below:

Current stock price = (Next year dividend) ÷ (Required rate of return - growth rate)

where,

Next year dividend is

= $1.55 + $1.55 × 0.06

= $1.55 + $0.093

= $1.643

Now placing these values, so the current stock price is

= ($1.643) ÷ (14% - 6%)

= ($1.643) ÷ (8%)

= $21

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