Ask Question
24 November, 22:59

General Importers announced that it will pay a dividend of $4.30 per share one year from today. After that, the company expects a slowdown in its business and will not pay a dividend for the next 6 years. Then, 8 years from today, the company will begin paying an annual dividend of $2.40 forever. The required return is 12.7 percent. What is the price of the stock today?

+3
Answers (1)
  1. 25 November, 01:33
    0
    The price of the stock today is $11.59

    Explanation:

    As Gordon Growth Model, price of stock = expected dividend paid / (discounting rate - growth rate)

    Growth rate of dividend from year 1 to year 8 (after 7 years)

    = ($2.4/$4.3) ^ (1/7) - 1 = - 8%

    Price of stock = $2.4 / (12.7% - (-8%) = $11.59
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “General Importers announced that it will pay a dividend of $4.30 per share one year from today. After that, the company expects a slowdown ...” 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