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2 May, 01:31

You are considering buying common stock in Grow On, Inc. The firm yesterday paid a dividend of $7.80. You have projected that dividends will grow at a rate of 9.0% per year indefinitely. If you want an annual return of 24.0%, what is the most you should pay for the stock now

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  1. 2 May, 02:58
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    The answer is $56.68

    Explanation:

    Solution

    We recall that:

    The firm paid a dividend of = $7.80

    The projected growth of dividends is at a rate = 9.0%

    The annual return = 24.0%

    Now,

    V = ($7.80 * (1.09) / (.24 - 0.9)

    = (8.502) / (.24-0.9)

    = (8.502) * (-0.66)

    = $56.68

    Therefore, this would be the most we would pay for the stock. If we paid less than that, our return would be above the 24%.
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Home » Business » You are considering buying common stock in Grow On, Inc. The firm yesterday paid a dividend of $7.80. You have projected that dividends will grow at a rate of 9.0% per year indefinitely. If you want an annual return of 24.
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