You anticipate that a mature company will only be able to pay its current dividend of...
You anticipate that a mature company will only be able to pay its current dividend of $4 for 10 more years. If your required return for this company is 8%, what is the value of the stock today?
Answer: $26.84
Please show how to find this answer by hand without using Excel.
Homework Answers
Present value of Annuity = A*[(1-(1+r)-n)/r]
Where
A - Annuity payment = 4
r - rate per period = 8%
n - no. of periods = 10
Present value of Annuity = 4* [(1-(1+.08)^-10)/.08]
= 4* [(1-0.46319348808)/.08]
= 4* [0.53680651192/.08]
= 4*6.710081399
= $26.84
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