The last dividend on Riverhawk Corporation's common stock was $3

Finance Oct 26, 2020

The last dividend on Riverhawk Corporation's common stock was $3.00, and the expected constant growth rate is 10 percent. If you require a rate of return of 20 percent, what is the highest price you should be willing to pay for this stock?

A. $ 33.00

B. $ 44.00

C. $ 60.50

D. $ 38.50

E. $ 49.50

F. $ 55.00

Expert Solution

Computation of Current Price of Stock:

Current Price of Stock = Dividend for Next Year / (Required Rate of Return - Growth Rate)

= $3*(1+10%)/(20% - 10%)

= $3.30/ 10%

Current Price of Stock = $33

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