Starz Ltd's dividends are expected to grow at a rate of 5% p

Finance Sep 06, 2020

Starz Ltd's dividends are expected to grow at a rate of 5% p.a. in the foreseeable future. Starz's current dividend is $1.00 per share and the required return on stocks like Starz is 10% p.a. Based on this information, Starz Ltd's share price today should be closest to:

A. $10.00.

B. $10.50.

C. $20.00.

D. $21.00.

Expert Solution

Computation of the current share price:-

Current share price = D1 / (Required return - Growth rate)

= $1 * (1 + 5%) / (10% - 5%)

= $1.05 / 5%

= $21.00

Correct option is D). $21.00

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