Question

Tresnan Brothers is expected to pay a $1.80 per share dividend at the end of the year (i.e., D1 5 $1.80). The dividend is expected to grow at a constant rate of 4% a year. The required rate of return on the stock, rs, is 10%. What is the stock’s current value per share

Answer 1

Answer:

The current value of Tresnan Brothers' stock is $30 per stock

Explanation:

To determine the value of Tresnan Brothers' stock we can use the growing perpetuity formula:

current stock value = dividend / (required rate of return - dividend growth rate)

current stock value = $1.80 / (10% - 4%) = $1.80 / 6% = $30