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Blasco just paid an annual dividend of $1.63 a share. What is one share of this...

Blasco just paid an annual dividend of $1.63 a share. What is one share of this stock worth to you if the dividends increase by 3 percent annually and you require a rate of return of 14 percent?

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Information provided:

Annual dividend= $1.63

Dividend growth rate= 3%

Required rate of return= 14%

The stock price is calculated 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= $1.63*(1 + 0.03)/ 0.14 – 0.03

                                             = $1.6789/ 0.11

                                             = $15.2627     $15.26.

In case of any query, kindly comment on the solution.

jeff jeffy answered 11 months ago
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