Ask Question
1 December, 06:29

Antiques 'R' Us is a mature manufacturing firm. The company just paid a dividend of $12.00, but management expects to reduce the payout by 5.25 percent per year, indefinitely.

Required:

If you require a return of 10 percent on this stock, what will you pay for a share today? (Do not round intermediate calculations. Round your answer to 2 decimal places (e. g., 32.16).)

+2
Answers (1)
  1. 1 December, 07:08
    0
    Check the explanation

    Explanation:

    Using the constant growth model which can be applied even if the dividends to be paid are declining by a constant or stable percentage, you just have to make sure that the negative growth is recognized. So, the price of the stock as at today will be calculated like:

    P 0 = D 0 (1 + g) / (R - g)

    P 0 = $11.40 (1 - 0.0475) / [ (0.08 - (-0.0475) ]

    P 0 = $85.16
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Antiques 'R' Us is a mature manufacturing firm. The company just paid a dividend of $12.00, but management expects to reduce the payout by ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers