Cullumber, Inc., paid a dividend of $4.40 last year. The company's management does not expect to...
Cullumber, Inc., paid a dividend of $4.40 last year. The company's management does not expect to increase its dividend in the foreseeable future. If the required rate of return is 20.0 percent, what is the current value of the stock? (Round answer to 2 decimal places, e.g. 15.25.)
Homework Answers
Information provided:
Current dividend= $4.40
Dividend growth rate= 0%
Required rate of return= 20%
The question can be solved using dividend discount model.
Price of the stock today=D1/(r-g)
where:
D1=next dividend payment
r=interest rate
g=firm’s expected growth rate
Current price of the stock= $4.40*(1 + 0.0)/ 0.20 – 0
= $4.40/ 0.20
= $22.
Therefore, the current value of the stock is $22.
In case of any query, kindly comment on the solution
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