Answer:
The cost of the share is the present value of future cash flows which is $146.84
Explanation:
The formula for the total dividends payable in perpetuity is given as
dividends/(return rate -growth rate)
since dividends growth rate is zero the dividends in perpetuity can be written as $11/(0.041-0)=$268.29 in today's terms
The dividends in perpetuity needs to be discounted to show that the present value today by a way of discounting.
the formula for discounting is given as pv=fv/(1+r)^n
where fv future value of dividends is $268.29
rate is 4.1%
n is 15 years since dividend payment begins at the commencement of sixteenth year
PV=268.29/(1+0.041)^15
PV=$146.84
