Builtrite just paid a dividend of $2 a share and expects dividends to continue growing at 10% annually. Investors require a 16% rate of return on Builtrite stock. What would you expect Builtrite stock to sell for?
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$36.67 |
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$33.33 |
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$35.00 |
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$38.75 |
Current price=D1/(Required return-Growth rate)
=(2*1.1)/(0.16-0.1)
which is equal to
=$36.67(Approx).
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