You are considering investing in Babua Corporation, which is expected to pay dividend of $10 a share at the end of the first year

Finance Jan 24, 2021

You are considering investing in Babua Corporation, which is expected to pay dividend of $10 a share at the end of the first year. Dividend is expected to grow at a constant rate g=5% and required rate of return is 6%. What is estimated current stock price. (round your answer to the nearest hundredth. have two digits after decimal place.)

Expert Solution

D1 = 10, g = 5% , ke = 6%

P0 = D1/(ke -g)

P0 = 10/(0.06-0.05) = 1000

ANSWER : 1000

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