K's Fashions is growing quickly. Dividends are expected to increase by 8 percent annually for the next three years, with the growth rate falling off to a constant 3 percent thereafter. The required return is 14 percent and the company just paid its annual dividend of $3.64 per share. What is the current share price?

Question

Business

Atticus Walsh

29 March, 05:08

K's Fashions is growing quickly. Dividends are expected to increase by 8 percent annually for the next three years, with the growth rate falling off to a constant 3 percent thereafter. The required return is 14 percent and the company just paid its annual dividend of $3.64 per share. What is the current share price?

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Answers (1)

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Schwartz · Answer 1

The current share price is $60.67

Explanation:

Dividend valuation method is used to calculate the the value of stock based on the dividend paid, its growth rate and rate of return.

Use following formula of DVM to calculate the price of share.

Stock Price = Dividend / (Rate of return - Growth rate)

Stock Price = $3.64 / (14% - 8%)

Stock Price = $3.64 / 6%

Stock Price = $60.67

The current share price is $60.67