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11 November, 07:33

PLastics INc will pay an annual dividend of $1.85 Next year. THey just announced that future dividends will be increasing by 2.25% annually. How much are you willing to pay for one share of this stock if yoyu require a 16% return? a. 13.45b. 13.61c. 13.76d. 14.02e. 14.45

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  1. 11 November, 09:42
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    In order to find the intrinsic value of a stock or how much we should pay for the stock we can use the dividend discount method. The formula is

    D * (1+G) / (R-G).

    D = Dividend = 1.85

    G = Growth Rate = 2.25%

    R = Required return = 16%

    In order to find the price we will input these values in the formula

    1.85 * (1+0.0225) / (0.16-0.0225 = 13.76

    We will be willing to pay $13.76 for this stock.

    Ans c. 13.76
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Home » Business » PLastics INc will pay an annual dividend of $1.85 Next year. THey just announced that future dividends will be increasing by 2.25% annually. How much are you willing to pay for one share of this stock if yoyu require a 16% return? a. 13.45b. 13.61c.
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