Answer:
$44.00
Explanation:
Use dividend discount models to answer this question;
Since it has a constant dividend growth rate, use the formula below;
Price(P0) = Div1/ (r-g)
where P0 = current price
Div1 = next year's dividend = Div0 (1+g ) = 4(1.10) = $4.4
r = required rate of return = 20% or 0.20 as a decimal
g = dividend growth rate = 10% or 0.10 as a decimal
P0 = 4.4 / (0.20-0.10)
P0 = 44
Therefore , you should pay $44 for this stock.
