you are thinking about investing in Suzie's Super Speakers.
You notice the following newspaper article about the business: When asked about the future of her successful company, Suzie highlighted that her company had paid dividends of $0.70 last year, and are due to pay dividends again today. Suzie is excited because today's dividends will be 4.3% higher than last year's. Suzie has spent years slowly raising her dividends to this level but now expects to maintain dividends at today's level for the life of her business. Suzie's Super Speakers currently return 12.1% pa to shareholders.
Based on this information, calculate the share price (P) for Suzie's Super Speakers immediately after today's dividends are paid. Give your answer in dollars and cents to the nearest cent.
Share Price (P0)
Last Year Dividend per share (D0) = $0.70 per share
Dividend Growth Rate (g) = 4.30% per year
Required Rate of Return (Ke) = 12.10%
As per the Dividend Discount Model, Share Price = D0(1 + g) / (Ke – g)
= $0.70(1 + 0.0430) / (0.1210 – 0.0430)
= $0.7301 / 0.0780
= $9.36 per share
“Therefore, the share price (P) for Suzie's Super Speakers immediately after today's dividends are paid = $9.36 per share”
You are thinking about investing in Suzie's Super Speakers. You notice the following newspaper ar...
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