Question

Saine Corporation will pay a $3.25 per share dividend next year. The company pledges to increase its dividend by 5 percent per year, indefinitely. If you require a return of 10.5 percent on your investment, how much will you pay for the company’s stock today?

Answer 1

Answer:

$59.10

Explanation:

P0 = D1/r-g

P0 = $3.25 / 0.105 - 0.05

P0 = $3.25 / 0.055

P0 = $59.09090909090909

P0 = $59.10

Thus, the price currently we will like to pay for the stock is $59.10