Burkhardt corp. pays a constant $14.00 dividend on its stock. the company will maintain this dividend for the next eight years and will then cease paying dividends forever. if the required return on this stock is 12 percent, what is the current share price?

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Business

Hensley

29 April, 00:30

Burkhardt corp. pays a constant $14.00 dividend on its stock. the company will maintain this dividend for the next eight years and will then cease paying dividends forever. if the required return on this stock is 12 percent, what is the current share price?

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Jaylyn Montes · Answer 1

The PV factor of an ordinary annuity for 8 years with the dividend payments made at the end of the year is 4.9676. Check the annuity table for this.

Therefore, to calculate for the value of this stock:

Share price = dividend x PV factor of an ordinary annuity

= $14.00 x 4.9676

= $69.55