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22 August, 15:43

Thomas brothers is expected to pay a$1.00 per share dividend at the end of the year. Dividend growth rate : 9% a year. The required rate of return on the stock is 17%. What is the stock's current value per share?

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  1. 22 August, 15:52
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    The correct answer is $12.5.

    Explanation:

    According to the scenario, the computation of the given data are as follows:

    Dividend = $1

    Growth rate = 9%

    Rate of return = 17%

    So, we can calculate the current value of stock by using following formula:

    Current value of stock = Dividend : (Rate of return - Growth rate)

    By putting the value, we get

    Current value = $1 : (17% - 9%)

    = $1 : 0.08

    = $12.5
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