Question

2. Problem 9.02 Click here to read the eBook: Constant Growth Stocks CONSTANT GROWTH VALUATION Tresnan Brothers is expected to pay a $1.3 per share dividend at the end of the year i.e., D, = $1.3). The dividend is expected to grow at a constant rate of 4% a year. The required rate of return on the stock, rs, is 12%. What is the stock's current value per share? Round your answer to two decimal places Grade It Now Save & Continue Continue without saving

Answer 1

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Then D = $1.30 per share g=4% Required Rate of Return = 12% As per Groneth model, Poor Stock's current Price is given by Po - DI Reng where Po= Stock's Current Price. Di= expected Dividend After year g= Groneth Rate Re - Cost of equity [Here required retum] Now, solving the above equation using ginen Information Po = 1.30 a 1.30 = $16.25 0.12 -0.04 0.08 Curent Stock Price = $16.25.