Your firm has a dividend policy that pays constant dividend of $1 per share to ordinary shareholders perpetually. Given your firm’s shareholders’ required rate of return of 5%, calculate the firm’s share price.Group of answer choices$20.00$2.00$200.00$0.05Next
Question
Your firm has a dividend policy that pays constant dividend of 20.00200.00$0.05Next
Solution
The price of a share in a firm that pays a constant dividend can be calculated using the Gordon Growth Model, which is a version of the dividend discount model. The formula is:
P = D / r
where: P = price of the share D = constant dividend per share r = required rate of return
Given in the question: D = $1 (constant dividend per share) r = 5% or 0.05 (required rate of return)
Substituting these values into the formula:
P = 20.00
So, the firm's share price is $20.00.
Similar Questions
What should be the current price of a share of stock if a $5 dividend was just paid, the stock has a required return of 20%, and a constant dividend growth rate of 6%?
What is the value of a share that has just paid a dividend of $1, growing at 5% and a required rate of return of 10%
Kiffer SARL just paid a dividend of €0.85 on its stock.They expect dividends to grow at a rate of 8% in the next three years and 5% per year thereafter.Given a required rate of return of 15%, what is the current value of the company's common stock?€8.28€9.64€10.41€11.24€12.41
The CFO of a publicly traded company is expecting to pay a dividend next year of $1.25 and projecting that the price of the company’s stock will be $45 in 1 year. The CFO has determined that the required rate of return for the company is 10%. Based on the data available, what is the value of one share of stock today?
paid cash dividend of $0.2 per share, investors require 16% return, the dividend expected to grow at a steady 8% per year, what is the current value of share, what will be the share worth in five years
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.