Burnett Corp pays a constant $27 dividend on its stock

Finance Dec 19, 2020

Burnett Corp pays a constant $27 dividend on its stock. The company will maintain this dividend for the next 15 years and will then cease paying dividends forever. If the required return on this stock is 12 percent, what is the current share price? Multiple Choice O $405.00 $193.09 $180.22 $183.89 $205.96

Expert Solution

The current stock price can be calculated as the present value of dividend over the next 15 years

Present value of dividend = Dividend * (1- (1+R)^-N)/R

where R = 12% and N = 15

PV of dividend = 27*((1-(1+12%)^-15)/12%

= 27*6.810864

= 183.89

Correct choice D

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