Ask Question
BusinessBusiness
3 January, 09:40

A company's stock is currently selling for 28.50. Its next dividend, payable one year from now, is expected to be 0.50 per share. Analysts forecast a long-run dividend growth rate of 7.5% for the company. Tomorrow, the long-run dividend growth rate estimate changes to 7%. Calculate the new stock price.

+3
Answers (1)
  1. 3 January, 10:10
    0
    Answer: $22.22

    Explanation:

    We can use the dividend discount model to solve for this.

    The formula is,

    P = D1 / r - g

    Where,

    D1 = the next dividend

    r = the expected return

    g = the growth rate.

    We do not have the expected return but we can calculate for it using the old stock price and growth rate. Making it x we have,

    28.5 = 0.5 / x - 0.075

    28.5 (x - 0.075) = 0.5

    x = 0.5 / 28.5 + 0.075

    x = 0.09254385964

    x = 9.25 %

    Now that we have the expected return we can calculate the new stock price with the new growth rate,

    P = 0.5 / 9.25% - 7%

    P = 22.2222222222

    P = $22.22

    The new stock price is $22.22
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “A company's stock is currently selling for 28.50. Its next dividend, payable one year from now, is expected to be 0.50 per share. Analysts ...” 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
You Might be Interested in
Aziz Industries has sales of $100,000 and accounts receivable of $11,500, and it gives its customers 30 days to pay. The industry average DSO is 27 days, based on a 365-day year.
Answers (1)
St. Philip Company ordered parts costing €250,000 from a foreign supplier on January 15 when the spot rate was $0.28 per €. A one-month forward contract was signed on that date to purchase €250,000 at a forward rate of $0.30.
Answers (1)
Your father's employer was just acquired, and he was given a severance payment of $365,000, which he invested at a 7.5% annual rate. He now plans to retire, and he wants to withdraw $35,000 at the end of each year, starting at the end of this year.
Answers (1)
Assume you work for an employer who will contribute $60 a week for the next 20 years into a retirement plan for your benefit. At a discount rate of 9 percent, what is this employee benefit worth to you today?
Answers (1)
Edison Inc., an electrical utility company, is venturing into a business in which electricity is generated through solar and wind energy.
Answers (1)
New Questions in Business
Amanda Company purchased a computer that cost $10,000. It had an estimated useful life of five years and a residual value of $1,000.
Answers (1)
Consumer surplus is a. the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. b. the amount a buyer is willing to pay for a good minus the cost of producing the good. c.
Answers (1)
You've borrowed $20,000 on margin to buy shares in ixnay, which is now selling at $40 per share. your account starts at the initial margin requirement of 50%. the maintenance margin is 35%. two days later, the stock price falls to $35 per share. a.
Answers (1)
The length of a rectangle is twice the width the perimeter is 36 ft find length and width
Answers (1)
An owner withdrawal of $20,000 would: A. decrease owner’s equity and increase assets by $20,000. B. increase owner’s equity and decrease liabilities by $20,000. C. increase liabilities and assets by $20,000.
Answers (1)
Home » Business » A company's stock is currently selling for 28.50. Its next dividend, payable one year from now, is expected to be 0.50 per share. Analysts forecast a long-run dividend growth rate of 7.5% for the company.
Sign Up Forgot Password?