Question

Waller Co. paid a $0.156 dividend per share in 2000, which grew to $0.342 in 2012. This growth is expected to continue. What is the value of this stock at the beginning of 2013 when the required return is 15.6 percent? (Round the growth rate, g, to 4 decimal places. Round your final answer to 2 decimal places.) X Answer is complete but not entirely correct. Stock value $ 24.06 >

Answer 1

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

0.342=0.156*(1+r/100)^12

(0.342/0.156)^(1/12)=(1+r/100)

(1+r/100)=1.0676

r=1.0676-1

=0.0676

Current price=D1/(Required return-Growth rate)

=(0.342*(1+0.0676))/(0.156-0.0676)

=$4.13(Approx).