Poulter Corporation will pay a dividend of $3.25 per share next year. The company pledges to increase its dividend by 5.1 percent per year, indefinitely. If you require a return of 11 percent on your investment, how much will you pay for the company's stock today? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)

Question

Business

Roman

20 October, 10:46

Poulter Corporation will pay a dividend of $3.25 per share next year. The company pledges to increase its dividend by 5.1 percent per year, indefinitely. If you require a return of 11 percent on your investment, how much will you pay for the company's stock today? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)

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Answers (1)

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Deven Cherry · Answer 1

Price of stock = $55.08

Explanation:

The price of a stock is the present value of the future dividends discounted at the required rate of return.

P = D / (r-g)

P-price of stock today, D - Dividend in year's time, r - required rate of return,

g - growth rate in dividend

Using the following parameters:

P = ?, r - 11%, g - 5.1%

P = 3.25 / (0.11-0.051)

P = 55.08474576

Price of stock = $55.08