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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