ABC, Inc. is expected to pay dividends of $19.26 each year infinitely. If the required rate on the stock is 16.22%, what is today's price of the stock?
Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box.
As per Gordon model, share price is given by:
Share price = D1 / k -g
where, D1 is next years' dividend = $19.26, k is the required rate of return = 16.22% and g is the growth = Since dividends will be same every year, so growth rate of dividends will be zero.
Putting the values in the above equation, we get,
Share price = 19.26 / 16.22% - 0%
Share price = 19.26 / 16.22%
Share price = 118.74
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