Question

In​ mid-2018, some analysts recommended that General Electric​ (GE) suspend its dividend payments to preserve cash needed for investment. Suppose you expected GE to stop paying dividends for two years before resuming an annual dividend of $ 1.25 per​ share, paid 2 years from​ now, growing by 2.7 % per year. If​ GE's equity cost of capital is 9.5 %​, estimate the value of​ GE's shares today.The price today is $___?

Answer 1

Answer:

price today is $18.88

Explanation:

given data

annual dividend = $1.25 per​ share

time = 2 year

growth rate =  2.7 % per year = 0.027

cost of capital = 9.5 % = 0.095

solution

we get here price today that is express as

today Price = annual dividend ×   (1 + growth rate ) ÷ (cost of capital - growth rate)    ..................1

put here value we get

today Price = $1.25 × $\frac{1+0.027}{0.095-0.027}$

today Price = $18.878676

so price today is $18.88