You believe that the Non-stick Gum Factory will pay a dividend of $4 on its common...
You believe that the Non-stick Gum Factory will pay a dividend of $4 on its common stock next year. Thereafter, you expect dividends to grow at a rate of 7% a year in perpetuity. If you require a return of 16% on your investment, how much should you be prepared to pay for the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Stock price $
Homework Answers
Current price=D1/(Required return-Growth rate)
=4/(0.16-0.07)
which is equal to
=$44.44(Approx).
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