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6 September, 07:48

Thomas Brothers is expected to pay a $0.50 per share dividend at the end of the year (that is, D1 = $0.50). The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock, rs, is 15%. What is the stock's current value per share?

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  1. 6 September, 08:18
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    CurrentStock Value per Share (P0) = $6.25

    Explanation:

    Dividend growth rate (g) = 7% per year

    Expected Dividend (D1) = $0.50

    Required return rate (R) = 15%

    CurrentStock Value (P0) = D1 / (R-g)

    P0 = $0.50 / (0.15 - 0.07)

    = $0.50 / 0.08

    = $6.25

    CurrentStock Value per Share (P0) = $6.25
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