A company pays a constant $8.25 dividend on its stock. The company willmaintain this dividend for the next 13 years and will then cease payingdividends forever. If the required return on this stock is 11.2 percent, whatis the current share price? (Hint: this is a present value problem for annuitycash flows.)

Question
Asked Dec 9, 2019
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A company pays a constant $8.25 dividend on its stock. The company will

maintain this dividend for the next 13 years and will then cease paying

dividends forever. If the required return on this stock is 11.2 percent, what

is the current share price? (Hint: this is a present value problem for annuity

cash flows.)



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Expert Answer

Step 1

The payments or receipts of cashflows at a definite interval is referred as annuity.

Step 2

Given:

Constant dividend = $8.25 per share

No. of years = 13 years

Required rate of return is 11.20%

Step 3

Based on spread sheet calculations, t...

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fe =PV(E7,E6,-E5,,0) E8 н 5 Dividend 6 year 7 rate 8 Stock price S8.25 13 11.20% $55.13 4.

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