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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

CONSTANT GROWTH VALUATION Tresnan Brothers is expected to pay a $1.80 per share dividend at the end of the year (i.e., D1 = $1.80). The dividend is expected to grow at a constant rate of 4% a year. The required rate of return on the stock, rs, is 10%. What is the stock’s current value per share?

Summary Introduction

To compute: The current value per share for Company T’s stock.

Introduction:

Dividends per Share: The periodic rewards that are received by the stockholders for their investment in a company are known as dividends. It is also a measure based on per share. Per share, calculation of dividends is called as the dividends per share.

Explanation

Given information:

Dividend at year 1 is $1.80.

Growth rate is 4% or 0.04.

Required rate of return is 10% or 0.10.

Formula to compute current value per share:

Value per share=Dividend at year1Required rate of returnGrowth rate

Substitute $1

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