Question

Suppose cyclone industrial inc will pay a dividend of 1.65 per share next year. The require return on the stock is 8% and its dividends will grow by 2% per year indefinitely. What is the stock price today?

Answer 1

Answer:

$27.50

Explanation:

according to the constant dividend growth model

price = d1 / (r - g)

d1 = next dividend to be paid

r = cost of equity

g = growth rate

$1.65 / ( 0.08 - 0.02) = $27.50