Company Z's earnings and dividends per share are expected to grow indefinitely by 2% a year.

Company Z's earnings and dividends per share are expected to grow indefinitely by 2% a year. If next year's dividend is $7 and the market capitalization rate is 11%, what is the current stock price?

Expert Solution

value of the share can be calculated by using dividend discount model

p = D1/(k-g)

where D1 is dividend for year 1 = 7

k is market rate = 11%

g is growth = 2%

jeff jeffy answered 2 years ago

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