You expect KT industries (KTI) will have earnings per share of $ 6 this year and expect that they will pay out $ 2.25 of these earnings to shareholders in the form of a dividend. KTI's return on new investments is 13 % and their equity cost of capital is 15 %. The value of a share of KTI's stock is closest to:

Question

Aleah Moses

Business

14 September, 03:27

You expect KT industries (KTI) will have earnings per share of $ 6 this year and expect that they will pay out $ 2.25 of these earnings to shareholders in the form of a dividend. KTI's return on new investments is 13 % and their equity cost of capital is 15 %. The value of a share of KTI's stock is closest to:

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Answers (1)

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Alondra Wang · Answer 1

Value of a share = $15

Explanation:

According to the dividend valuation model, the value of a share is the present value of expected dividend discounted at the required rate of return.

This model is expressed in the formula below;

Value of a share = D/Ke

D - dividend payable in year one

Ke - cost of equity

Value of a share = 2.25/0.15

Value of a share = $15

Value of a share = $15