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Precision Engineering recently announced that its next annual dividend will be $1.20 per share with later dividends increasing by 2.5 percent annually. What is the current value of this stock to you if you require a 12 percent rate of return?

Respuesta :

akindelemf

Answer:

The current value of the  stock  is $12.63

Explanation:

price of a share

[tex]P_{t} = \frac{D_{t} }{R - g}[/tex]  ... 1  

                                     where, [tex]P_{t}[/tex] = price of a stock at t years

                                      [tex]D_{t}[/tex] = dividend at year t

                                       R= rate of return from market

                                       g = growth rate of dividend

substituting into equation 1

[tex]P_{t}[/tex] = $1.2 ÷ 12% - 2.5%

    = $1.2 ÷ 0.095

    = $12.6316

     = $12.63

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