Sharbaugh Inc.'s most recent dividend was $2.00 per share. The dividend is expected to grow at a rate of 4% per year for the foreseeable future. If the market return is 13% on investments with comparable risk, what should the stock sell for today?

A) $16.00
B) $22.22
C) $23.11
D) $50.00
E) $52.00

Question

Xyrhadine Landingin · Accepted Answer

Final Answer : C, Explanation :  The price of a stock (P) is determined by the formula:P = D/(r-g), where D is the dividend, r is the required rate of return, and g is the growth rate of the dividend.In this problem, D = $2.00, g = 4%, and r = 13%.So,P=$2.00/(0.13-0.04) = $23.11Therefore, the stock should sell for $23.11 today.

Sharbaugh Inc.'s most recent dividend was $2.00 per share. The dividend is expected to grow at a rate of 4% per year for the foreseeable future. If the market return is 13% on investments with comparable risk, what should the stock sell for today?

A) $16.00
B) $22.22
C) $23.11
D) $50.00
E) $52.00

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Sharbaugh Inc.'s most recent dividend was $2.00 per share. The dividend is expected to grow at a rate of 4% per year for the foreseeable future. If the market return is 13% on investments with comparable risk, what should the stock sell for today?A) $16.00B) $22.22C) $23.11D) $50.00E) $52.00

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Learning Objectives

Learning Objectives

Related questions

Sharbaugh Inc.'s most recent dividend was $2.00 per share. The dividend is expected to grow at a rate of 4% per year for the foreseeable future. If the market return is 13% on investments with comparable risk, what should the stock sell for today?

A) $16.00
B) $22.22
C) $23.11
D) $50.00
E) $52.00