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dem82 [27]
2 years ago
14

Symon's Suppers Co. has announced that it will pay a dividend of $4.27 per share one year from today. Additionally, the company

expects to increase its dividend by 4.6 percent annually. The required return on the company's stock is 10.8 percent. What is the current share price
Business
1 answer:
Ganezh [65]2 years ago
8 0

Answer:

The price of the stock today is $65.02

Explanation:

The current price of the stock can be calculated using the constant growth model of DDM. The DDM values the stock based on the present value of the expected future dividends from the stock.

The formula for the price of the stock today under the constant growth model is,

P0 = D1 / (r - g)

Where,

  • D1 is the dividend expected to be paid next period
  • r is the required rate of return
  • g is the growth rate in dividends

To calculate the price today, we use the dividend for the next period. Thus, we will use D2  to calculate the price of the stock at Year 1 and will discount it back to today to calculate the price today.

P0 = [(4.27 * (1+0.046)) / (0.108 - 0.046)] / (1+0.108)

P0 = $65.017 rounded off to $65.02

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