Question

Burnett Corp. pays a constant $8.25 dividend on its stock. The company will maintain this dividend for the next 13 years and will then cease paying dividends forever. If the required return on this stock is 11.2 percent, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Answer:

So the current share price is  $54.45

Explanation:

Given:

• D =  $8.25
• Required return rate: 11,2% = 0.112
• The company will maintain this dividend for the next 13

As we know that:

Present value annuity for 13 years = [ 1 - (1 + r)⁻ⁿ ] ÷ r

[ 1 - $(1+ 0.112)x^{-13}$ ] ÷ 0.112

= $6.6

And current share price is : Current Dividend × Present value annuity for 13 years

= 6.6*8.25

= $54.45

So the current share price is  $54.45