contestada

Gruber Corp. pays a constant $7.40 dividend on its stock. The company will maintain this dividend for the next 8 years and will then cease paying dividends forever. The required return on this stock is 12 percent. What is the current share price

Respuesta :

ogbe2k3

Answer:

The answer is $36.76

Explanation:

Solution

Given that:

Dividend on stock = $7.40

n =  8 years

Required return on the stock =12%

Thus we find the current share price

Now

Current share price will be the present value of cash dividends received over 8 years is given below

Current share price=$7.40 *Present value of annuity factor(12%,8)

Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=7.4[1-(1.12)^-8]/0.12

=7.4*4.967639767

=$36.76

Therefore the current share price is $36.76

Otras preguntas