Question

The ZZ Corporation has just paid a dividend of $3.5M. The expected growth of the company is 7.3% per year. The interest rate used for this type of corporation is 10.4%. Assume that there are 800,000 shares outstanding. What is the value of a share of stock in the ZZ Corporation? (Keep your answer to 2 decimal places, e.g. xx.12.)

Answer 1

Answer:

price = $151.43

Step-by-step explanation:

Given data:

dividend = $3.5M

Growth percentage = 7.3% per year

Number of share is 800,000

Price for stock can be calculated as

$price  = \frac{dividend \times (1+g)}{Ke-g}$

here,

Ke = 10.4%

g = 7.3%

dividend per share  $= \frac{3.5M}{800,000}$= $4.375 PER SHARE

So we have

$price  = \frac{4.375\times (1+0.073)}{0.104 - 0.073}$

$price = \frac{4.375\times 1.073}{0.031}$

price = $151.43