How much are you willing to pay for one share of APOL stock if the company...
How much are you willing to pay for one share of APOL stock if the company just paid an annual dividend of $2.25, the dividends increase by 2 percent annually, and you require a return of 15 percent?
Homework Answers
Ans $ 17.65
| P0 = | Price of Share |
| D1 = | Current Dividend |
| Ke = | Cost of Equity |
| g = | growth rate |
| P0 = | D1 / (Ke - g) |
| P0 = | 2.2950 / (15%- 2%) |
| P0 = | 17.65 |
| D1 = | D0* (1 + g) |
| D1 = | 2.25* (1 + 2.00%) |
| D1 = | 2.2950 |
Current price=D1/(Required return-Growth rate)
=(2.25*1.02)/(0.15-0.02)
which is equal to
=$17.65(Approx).
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