Question

7. The SMH Company is expected to pay a dividend of $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company's required rate of return is 10.33%. What is the company's current stock price?

Answer 1

The company's stock price can be found in accordance with the dividend discounting model with the constant growth rate.

Po= D1/(ke-g)

D1=dividend expected at the end of year= 1.25

Ke=required rate of return =10.33%

g= growth rate of dividend= 6%

P0= 1.25/(10.33%-6%)

=$28.86

Price of the share would be 28.86