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Gee-Gee's is going to pay an annual dividend of $2.05 a share next year. This year, the company paid a dividend of $2 a share. The company adheres to a constant rate of growth dividend policy. What will one share of this common stock be worth six years from now if the applicable discount rate is 11.2 percent?

Respuesta :

anwar96iqbal

Answer:

The worth of common stock six years from now will be $27.32.

Explanation:

First of all we have to calculate the Growth Rate of Dividends.

Growth Rate = g = (2.05 - 2) / 2 = .025

Now use this growth rate in Dividend Discount Model to calculate the price of share six years from now.

Price six years from now = [2.05 * (1.025)^6} / [.112 - .025] = 2.377 / .087 = $27.32.

Thanks!

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