The facts of the case is reproduced below
First year dividend is $1.35.
Annual Growth rate is 3%
Rate of return on equity is 16%.
Price of a stock can be calculated based on the dividend amount issued, growth rate and the expected rate of return using the dividend Discount model. Under the model, the premise is that the sum of the current and future cash flows should be equal to the stock price. Accordingly, the calculation and formula are as under.
First Year Dividend | 1.35 |
Growth Rate | 3% |
Rate of return | 16% |
Stock price = | Dividend Amount/ (Expected rate of return - Growth rate) |
Stock price = | 1.35/(0.16-0.03) |
which is equal to | 10.38 |
Hence the stock price is option A $10.38
please help Avril Symchronistics will pay a dividend of $1 35 per share this year It...
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