Question

API has just paid an annual dividend of $1.39 per share and expects to increase it by 3.5 percent annually for the foreseeable future. Calculate the current value of API’s common stock given a discount rate of 6 percent.

Answer 1

Answer:

$57.55

Explanation:

Calculation for the current value of API’s common stock given a discount rate of 6 percent.

Using this formula

API’s common stock=Annual dividend(1+Expected annual dividend increase)/Discount rate-Expected annual dividend increase

Let plug in the formula

API’s common stock=$1.39(1+.035)/.06−.035

API’s common stock=$1.39(1.035)/.06−.035

API’s common stock=1.43865/0.025

API’s common stock=$57.55

Therefore the current value of API’s common stock given a discount rate of 6 percent will be $57.55