Question

A stock is expected to pay $1.10 per share every year indefinitely and the equity cost...

A stock is expected to pay $1.10 per share every year indefinitely and the equity cost of capital for the company is 7.1% . What price would an investor be expected to pay per share ten years in the future?

a. $23.24

b. $15.49

c. $30.98

d. $38.73

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Answer #1

Current value of share=Annual dividend/equity cost of capital

=1.1/0.071

=$15.49(Approx).

Hence in this case of no growth;P10 would be equal to Current price

=$15.49(Approx).

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