Atlas Home Supply has paid a constant annual dividend of $2.40 a share for the past 15 years. Yesterday, the firm announced the dividend will increase next year by 10 percent and will stay at that level through Year 3, after which time the dividends will increase by 2 percent annually. The required return on this stock is 12 percent. What is the current value per share?

Question

Business

Adelaide Schmitt

17 June, 17:17

Atlas Home Supply has paid a constant annual dividend of $2.40 a share for the past 15 years. Yesterday, the firm announced the dividend will increase next year by 10 percent and will stay at that level through Year 3, after which time the dividends will increase by 2 percent annually. The required return on this stock is 12 percent. What is the current value per share?

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Answers (1)

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Raiden Gregory · Answer 1

The current value per share is $25.51

Explanation:

P3 = ($2.40x1.10x1.02) / (0.012 - 0.02)

= 26.928

P0 = (($2.40x1.10) / 1.12) + (($2.40x1.1) / (1.122) + ((($2.40x1.1) + $26.928) / 1.123)

= $25.51

Therefore, The current value per share is $25.51