Question

railway cabooses justpaid its annual sividend of $1.70 per share. The company has been reducing the dividends by 11.3 percent each year. how much are you willing to pay today to purchase stock in this company if your required rate of return is 12 percent?

Answer 1

Answer:

$6.47

Explanation:

The computation of the current price of the stock is shown below:

= {Current Dividend x [1 + (Dividend Growth)}  ÷ [Required rate of Return - (Dividend growth)]

= {$1.70 × [1 + (- 0.113)]} ÷ [0.12 - (- 0.113)]

= $1.5079 ÷ 0.233

= $6.47

hence, the current price of the stock valued today is $6.47 i.e come by applying the above formula