Battles, Inc. just paid an annual dividend of $1.20 a share. The dividend will not change next year and then increase by 4 percent annually thereafter.

1. What is the present value of this stock at a discount rate of 9 percent?

Question

Business

Madeleine Buchanan

13 May, 14:12

Battles, Inc. just paid an annual dividend of $1.20 a share. The dividend will not change next year and then increase by 4 percent annually thereafter.

1. What is the present value of this stock at a discount rate of 9 percent?

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Answers (1)

Know the Answer?

Kira Cervantes · Answer 1

The price of the stock today is $24

Explanation:

The price of the stock can be calculated using the dividend discount model. The price of the stock will include discounting back future dividends.

P0 = D0 * (1+g) / 1+r + [D * (1+g) / r-g] / 1+r

P0 = 1.2 * (1+0) / 1+0.09 + [1.2 (1+0.04) / 0.09-0.04] / 1+0.09

P0 = $24

Battles, Inc. just paid an annual dividend of $1.20 a share. The dividend will not change next year and then increase by 4 percent annually thereafter.1. What is the present value of this stock at a discount rate of 9 percent?

Battles, Inc. just paid an annual dividend of $1.20 a share. The dividend will not change next year and then increase by 4 percent annually thereafter.

1. What is the present value of this stock at a discount rate of 9 percent?