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15 October, 18:37

Main Street Antiques is planning on paying an annual dividend of $2.20 per share next year. The company is slowly downsizing and is decreasing its dividend by 3 percent annually. What is the current value of this stock at a discount rate of 8 percent?

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  1. 15 October, 19:22
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    Price of the share is $44

    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.

    As per given data

    Dividend = $2.2

    Growth rate = 3%

    Discount rate = 8%

    Formula to calculate the value of stock

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

    Price = $2.2 / (8% - 3%)

    Price = $2.2 / 0.08 - 0.03)

    Price = $2.2 / 0.05

    Price = $44
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