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Homework answers / question archive / A publicly traded firm just paid out a dividend (assume t=0 on the timeline) of $4/share, so this cash has been paid out and is no longer part of the firm's value and stock price
A publicly traded firm just paid out a dividend (assume t=0 on the timeline) of $4/share, so this cash has been paid out and is no longer part of the firm's value and stock price. This firm is expected to make dividend payments forever.
Calculate/estimate the current price or value per share of this stock if its equity cost of capital or required return is r=10% per year, and the dividends will increase or grow at a constant annual rate of g=4%/year forever?
Computation of the current stock price:-
Current stock price = D1 / (Cost of capital - Growth rate)
= $4 * (1 + 4%) / (10% - 4%)
= $4.16 / 6%
= $69.33
