Header Motor, Inc., paid a $3.91 dividend last year. At a constant growth rate of 7 percent, what is the value of the common stock if the investors require a 16 percent rate of return? The value of the common stock is $ nothing. (Round to the nearest cent.)

Question

Jarrett Beltran

Business

14 January, 00:58

Header Motor, Inc., paid a $3.91 dividend last year. At a constant growth rate of 7 percent, what is the value of the common stock if the investors require a 16 percent rate of return? The value of the common stock is $ nothing. (Round to the nearest cent.)

+1

Answers (1)

Know the Answer?

Damaris Gilmore · Answer 1

The value of the stock is $43.44

Explanation:

The value of common stock can be computed using the below formula:

Price of share=dividend / (rate of return-growth rate)

dividend = $3.91

rate of return is 16%

growth rate is 7%

Price of the share=$3.91 / (16%-7%)

=$43.44

The value of this common stock today is $43.44

Investors usually value investment in shares by making reference to the dividend capacity of the investment. In other words, the dividends payable in the future discounted to today; s terms is the equivalent value of the share today.