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20 September, 17:32

Vandalay Industries is an established company in a mature industry. They currently pay an annual dividend of $2.50 per share and expect to continue to do so indefinitely. If investors require a 12 percent return on stock of this risk, what should Vandalay's current share price be? $20.83 $20.00 $25.00 $21.99

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  1. 20 September, 18:21
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    Current share price = $20.833

    Explanation:

    Given:

    Annual dividend = $2.50 per share

    Required rate of return = 12% = 12 / 100 = 0.12

    Dividend growth rate = 0

    Current share price = ?

    Computation of current share price:

    Current share price = Annual dividend / (Required rate of return/Dividend growth rate)

    Current share price = 2.50 / (0.12 - 0)

    Current share price = $20.833
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