IBM expects to pay a dividend of $4 next year and expects these dividends to grow...

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IBM expects to pay a dividend of $4 next year and expects these dividends to grow at 8% a year. The price of IBM is $100 per

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Answer 1

Answer #1

We can calculate the price of share using the following formula:-

Price of share = dividend for next year/Re-g

Where

Re = cost of equity

g = growth

So when applying the formula

100 = $4/Re-0.08

Re-0.08 = $4/100

Re-0.08= 0.04

Re = 0.08+0.04

Re = 0.12 = 12%

Answer is option C 12%

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Answer 2

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IBM expects to pay a dividend of $4 next year and expects these dividends to grow...

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Add Answer to: IBM expects to pay a dividend of $4 next year and expects these dividends to grow...

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