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Avril Synchronistics will pay a dividend of $ 1.40 per share this year. It is expected that this dividend will grow by 7​% each year in the future. What will be the current value of a single share of​ Avril's stock if the​ firm's equity cost of capital is 15​%?

Respuesta :

jepessoa

Answer:

$18.73 per stock

Explanation:

we need to calculate the company's terminal value and we can use the dividend growth model:

P₀ = Div₁ / (Re - g)

  • Div₁ = $1.40 x (1 + 7%) = $1.498
  • Re = 15%
  • g = 7%

P₀ = $1.498 / (15% - 7%) = $1.498 / 8% = $18.725 ≈ $18.73 per stock

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