A drilling company reserves are depleting. Production is falling as are sales, costs are rising as...

A drilling company reserves are depleting. Production is falling as are sales, costs are rising as production becomes more difficult, and earnings are expected to decline by 9% per year into perpetuity. The firm just paid a $10 dividend and the cost of equity is 6.5%. What is the value of the stock?

		$140.00
		$0.00, as the estimated value was negative
		$58.71
		$64.52

Solutions

Expert Solution

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

=(10*(1-0.09)/(0.065-(0.09)

=9.1/0.155

which is equal to

=$58.71(Approx)

jeff jeffy answered 1 year ago

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