P0 = D1 / ( r - g ) | ||
Here, | ||
P0 = Current value of stock = 26 | ||
D1 = Next dividend = 2.1 | ||
g = Growth rate | ||
r = equity cost of capital = 12% | ||
Now let us put these figures in the above equation to find out required return. | ||
26 = 2.1 / ( 12% - g ) | ||
( 12% - g ) = 2.1 / 26 | ||
12% - g = 8.08% | ||
g = 12% - 8.08% | 3.92% | Option C |
The Sisyphean Company's common stock is currently trading for $26 por share. The stock is expected...
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