Dividends are expected to grow at 1.7% rate indefinitely, and the last dividend was $6. If...

Dividends are expected to grow at 1.7% rate indefinitely, and the last dividend was $6. If the relevant risk return is 5%, what would you be willing to pay for the stock.

A) $120.000

B) S122.000

C) $181.818

D) $184.909

E) $ 5.811

Expert Solution

Ans D) $ 184.909

P0 =	Price of Share
D1 =	Current Dividend
Ke =	Cost of Equity
g =	growth rate

P0 =	D1 / (Ke - g)
P0 =	6.102 / (5%- 1.7%)
P0 =	184.909


D1 =	D0* (1 + g)
D1 =	6* (1 + 1.7%)
D1 =	6.1020

jeff jeffy answered 3 years ago

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