Question

the jackson -timberlake wardrobe co. just paid a dividend of $1.95 per share on its stock, the dividends are expected to grow at a constant rate of 4 percent per year indefinitely. if investors require a return of 10.5 percent on the stock, what is the current price

Answer 1

Answer:

Current Price of the stock is $31.20

Explanation:

Price of the stock is the present value of the future dividends associated with the stock.

As per given data

Dividend = $1.95

Growth rate = 4%

Required rate of return = 10.5%

Current Price of the stock can be determined using following formula

Price of Stock = Dividend ( 1 + growth rate ) / ( Required rate of return - Growth rate )

Price of Stock = $1.95 ( 1 + 4% ) / ( 10.5% - 4% )

Price of Stock = $2.028 / 6.5%

Price of Stock = $31.20