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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 4 months ago
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