Question
In: Finance
Hudson Corporation will pay a dividend of $3.40 per share next year. The company pledges to...
| Hudson Corporation will pay a dividend of $3.40 per share next year. The company pledges to increase its dividend by 7.70 percent per year indefinitely. |
| If you require a return of 17.30 percent on your investment, how much will you pay for the company's stock today? |
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Expert Solution
Information provided:
Next year’s dividend payment= $3.40
Dividend growth rate= 7.70%
Required return= 17.30%
The question can be solved using the dividend discount model.
Price of the stock today=D1/(r-g)
where:
D1=next dividend payment
r=interest rate
g=firm’s expected growth rate
Price of the stock today= $3.40/ 0.1730 – 0.0770
= $3.40/ 0.0960
= $35.42.
In case of any query, kindly comment on the solution.
jeff jeffy answered 3 months agoRelated Solutions
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