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23 December, 05:20

Metasteel Limited Co. has a stable track record with sales that are not expected to grow in the next several years. Its last annual dividend was $5.75. If the required rate of return on similar investments is 18 percent, what is the current stock price

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  1. 23 December, 06:48
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    The current price of stock is $31.94.

    Explanation:

    The stock price can be calculated by simply dividing the last paid dividend with net required rate of return of expected growth rate.

    Growth rate = 0% (as sales not expected to grow)

    Last Dividend = $5.75

    Rate of return = 18% = 0.18

    Price of stock = Last dividend / (rate of return - growth rate)

    Price of stock = $5.75 / (18% - 0%)

    Price of stock = $5.75 / 18%

    Price of stock = $5.75 / 0.18

    Price of stock = $31.94
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