Question
In: Finance
Widgets Inc. has been performing well lately. Analysts believe that the company's earnings (and dividends) will...
Widgets Inc. has been performing well lately. Analysts believe
that the company's
earnings (and dividends) will grow at a rate of 15 percent each
year into the foreseeable
future. Next year’s dividend is expected to be $4.00 per share. If
the required rate of return
on the stock is 20 percent, what should a share of stock sell for
today?
Solutions
Expert Solution
Answer : Calculation of Stock Price :
Stock Price = Expected Dividend / (Required Return - Growth rate)
= 4 / (0.20 - 0.15)
= 80
A share of stock would sell at 80.
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