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Last year Artworks, Inc. paid a dividend of $1.50. You anticipate that the company’s growth rate...

Last year Artworks, Inc. paid a dividend of $1.50. You anticipate that the company’s growth rate is 4 percent and have a required rate of return of 9 percent for this type of equity investment. What is the maximum price you would be willing to pay for the stock? Round your answer to the nearest cent.

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Expert Solution

Ans $ 31.20

P0 = Price of Share
D1 = Current Dividend
Ke = Cost of Equity
g = growth rate
P0 = D1 / (Ke - g)
P0 = 1.56 / (9%- 4%)
P0 = 31.20
D1 = D0* (1 + g)
D1 = 1.50* (1 + 4.00%)
D1 = 1.5600

jeff jeffy answered 2 years ago
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