Question

NoGrowth Corporation currently pays a dividend of $0.49 per quarter, and it will continue to pay this dividend forever. What is the price per share of NoGrowth stock if the firm's equity cost of capital is 15.4%? The stock price is $(Round to the nearest cent)

Answer 1

Given:

Quarterly dividend= $0.49

Equity cost of capital= 15.4%

First, we need to convert the quarterly dividend to annual dividend:

= $0.49*4= $1.96

Then, we dividend the annual dividend by the cost of capital.

Price per share= $1.96/ 0.154= $12.7273 $\rightarrow$ $12.73.

I hope that was useful :)