Question

Gruber Corp. pays a constant $9.35 dividend on its stock. The company will maintain this dividend for the next 10 years and will then cease paying dividends forever. The required return on this stock is 10 percent. What is the current share price? (Do not round intermediate calculations and round your final answe

Answer 1

Answer - Current share price = $57.45

Reason -

Current share price will be the present value of all the dividend payments in 10 years which can be found by applying simple annuity factor -

Current share price = dividend * present value annuity factor, 10%, 10 years

= 9.35 * 6.14456710588

= 57.4517024371 or $57.45 ( rounded off )

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