ork 59 Summit Systems will pay a dividend of $1.55 this year. If you expect Summit's...

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Answer 1

Answer #1

For share price, we need to calculate next year's dividend.

Current year's dividend = $1.55

Dividend growth rate = 5.2%

Next year's dividend = $1.55 + ($1.55 * 5.2%)

Next year's dividend = $1.55 + $0.0806

Next year's dividend = $1.6306

Now, as per Gordon model, share price is given by:

Share price = D1 / k -g

where, D1 is next years' dividend = $1.6306, k is the required rate of return = 11.1% and g is the growth rate = 5.2%

Putting these values in the above formula, we get,

Share price = $1.6306 / 11.1% - 5.2%

Share price = $1.6306 / 5.9%

Share price = $27.64

Answer 2

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