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Thomas brothers is expected to pay a$1.00 per share dividend at the end of the year. Dividend growth rate : 9% a year. The required rate of return on the stock is 17%. What is the stock’s current value per share?

Respuesta :

Answer:

The correct answer is $12.5.

Explanation:

According to the scenario, the computation of the given data are as follows:

Dividend = $1

Growth rate = 9%

Rate of return = 17%

So, we can calculate the current value of stock by using following formula:

Current value of stock = Dividend ÷ ( Rate of return - Growth rate )

By putting the value, we get

Current value = $1 ÷ ( 17% - 9%)

= $1 ÷ 0.08

= $12.5

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