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20 November, 06:26

Dee's made two announcements concerning its common stock today. First, the company announced that the next annual dividend will be $1.58 a share. Secondly, all dividends after that will decrease by 1.15 percent annually. What is the value of this stock at a discount rate of 15.5 percent?

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  1. 20 November, 07:22
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    The value of the stock at the given discount rate is $9.5

    Explanation:

    Here, we are interested in calculating the value of the stock at the given discount rate.

    To do this, we employ a mathematical formula;

    Value of the stock = Expected dividend : (discount rate-growth rate)

    According to the question, we identify the following;

    Expected dividend = $1.58

    Growth rate (negative) = - 1.15% = - 1.15/100 = - 0.0115

    Discount rate = 15.5% = 15.5/100 = 0.155

    Plugging these values into the equation, we have;

    Value of the stock = 1.58 : (0.155 - (-0.0115)

    Value of the stock = 1.58 / (0.155 + 0.0115)

    Value of the stock = 1.58/0.1665 = $9.5
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Home » Business » Dee's made two announcements concerning its common stock today. First, the company announced that the next annual dividend will be $1.58 a share. Secondly, all dividends after that will decrease by 1.15 percent annually.
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