Question

Antiques R Us is a mature manufacturing firm. The company just paid a dividend of $10.90, but management expects to reduce the payout by 5 percent per year indefinitely. If you require a return of 10 percent on this stock, what will you pay for a current share today?  (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Current price=D1/(Required return-Growth rate)

=(10.9*(1-0.05))/(0.1-(0.05)

=10.355/0.15

=$69.03(Approx).