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9 May, 11:56

You expect KT industries (KTI) will have earnings per share of $ 6 this year and expect that they will pay out $ 2.25 of these earnings to shareholders in the form of a dividend. KTI's return on new investments is 13 % and their equity cost of capital is 15 %. The value of a share of KTI's stock is closest to:

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  1. 9 May, 15:06
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    Value of a share = $15

    Explanation:

    According to the dividend valuation model, the value of a share is the present value of expected dividend discounted at the required rate of return.

    This model is expressed in the formula below;

    Value of a share = D/Ke

    D - dividend payable in year one

    Ke - cost of equity

    Value of a share = 2.25/0.15

    Value of a share = $15

    Value of a share = $15
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