Charles Wilson is interested in purchasing the common stock of Sunland, Inc

Finance Apr 01, 2021

Charles Wilson is interested in purchasing the common stock of Sunland, Inc., which is currently priced at $48.38. The company is expected to pay a dividend of $2.58 next year and to increase its dividend at a constant rate of 8.60 percent.

What should the market value of the stock be if the required rate of return is 14 percent?

(Round answer to 2 decimal places, e.g. 15.20.)

Market value of stock$

Expert Solution

Computation of Market Value of Stock:

Market Value of Stock = Next Year Dividend/(Required Rate of Return - Growth Rate)

= $2.58/(14%-8.60%)

= $2.58 / 5.40%

Market Value of Stock = $47.78

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