Answer:
The answer is $80.20
Explanation:
This can be gotten through what will call Dividend Discount Model. It is one of the methods to determine the price of a company's stock.
The formula is:
Ke = D1/Po +g
Where D1 is the future dividend payment
Po is the present value of the stock
g is the growth rate
Ke is the cost of equity
D1 = $4.45 x 1.08 = $4.81
Ke = 0.14
g = 0.08
Therefore, Po =$4.81/0.14 -0.08
=$4.81/0.06
=$80.20
Answer:
Current stock price is $80.10
Explanation:
Current price of stock =Do*(1+g)/r-g
Do is the dividend that has just been paid of $4.45
g is the growth rate of dividend at 8%
r is the investor's expected rate of return of 14% also known as discount rate
Current price of stock=$4.45*(1+8%)/14%-8%
=$4.45*1.08/6%
=4.806 /6%
=$80.10
The current price of the stock of Johnson corporation is $80.10 since a rational investor prices a stock at a price that reflects the dividend capacity of the stock in the future
