Maynard Steel plans to pay a dividend of $3 this year

Finance Oct 23, 2020

Maynard Steel plans to pay a dividend of $3 this year. The company has an expected growth rate of 4% per year and an equity cost of capital of 10%. Assuming Maynard’s dividend payout rate and expected growth rate remains constant, and Maynard does not issue or repurchase shares, estimate Maynard’s share price.

Expert Solution

Dividend at Year 0 = $ 3; Perpetual Growth = 4% per year and the Cost of Capital = 10%

Share Price = 3 * (1+4%) /(10%-4%) =Dividend * (1+Growth%) / (Cost of Capital - Growth %) = 52

Maynard’s share price = $ 52

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