Ask Question
1 June, 13:44

Antiques R Us is a mature manufacturing firm. The company just paid a $9 dividend, but management expects to reduce the payout by 8 percent per year, indefinitely. If you require a 14 percent return on this stock, what will you pay for a share today?

+3
Answers (2)
  1. 1 June, 15:21
    0
    I will pay $40,9 for the share today

    Explanation:

    Dividend Valuation method is used to value the stock price of a company based on the dividend paid, its growth rate and rate of return. The price is calculated by calculating present value of future dividend payment.

    Formula to calculate the value of stock

    Price = Dividend / (Rate or return - growth rate)

    Price = $9 / (14% - (-8%))

    Price = $9 / 14% + 8%

    Price = $9 / 22%

    Price = $40.9
  2. 1 June, 15:40
    0
    The amount to be paid for the stock: $1.82

    Explanation:

    The value of a stock is the present value of future cash flows expected from the stock discounted at the required rate of return.

    Where dividend is expected to decline by an annual rate, the price of a stock can still be determined using the dividend valuation model, but with a provision for a negative growth rate in dividend.

    With a negative growth rate, the model is modified as follows:

    P = D * (1-g) / (r - (-g))

    D - 9, g - 8%, r - 14%

    P = 9 * (1-0.08) / (0.14 - (-0.08)

    = $1.8216

    The amount to be paid for the stock: $1.8216
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Antiques R Us is a mature manufacturing firm. The company just paid a $9 dividend, but management expects to reduce the payout by 8 percent ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers