We expect Elvis's Blue Suede Co, a purveyor of fine footwear, to pay a dividend of...

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We expect Elvis's Blue Suede Co, a purveyor of fine footwear, to pay a dividend of...

We expect Elvis's Blue Suede Co, a purveyor of fine footwear, to pay a dividend of 4.24 next year. If we expect this dividend to grow at a rate of 3%, and we require a return of 19%, how much would we be willing to pay for a share of stock in Elvis's Blue Suede Shoes?

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Answer 1

Answer #1

Price = Dividend in 1 year/(cost of equity - growth rate)

Price = 4.24/ (0.19 - 0.03)

Price = 26.5

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Answer 2

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We expect Elvis's Blue Suede Co, a purveyor of fine footwear, to pay a dividend of...