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32) The common stock of Water Town Mills pays a constant annual dividend of $2.25 a share. What is one share of this stock worth at a discount rate of 16.2 percent? A) S13.89 B) $14.01 C) $14.56 D) S13.79 E) $13.28
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The answer is A) $13.89.

The formula for calculation of value of stock is as below:

Value of stock = Expected dividend next year/(discount rate or required return - expected dividend growth rate)

In the question, expected dividend growth rate is not given. So it's assumed that growth rate is 0% which means same dividend will be paid next year.

Value of stock = $2.25*(1+0.00)/(0.162 - 0.00)

= $2.25/0.162

= $13.89

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