Post a New Question

Finance

posted by on .

Company Q has just paid a dividend of $1.40 per share. Its dividend is expected to grow at 5% per year perpetually. If the required return is 10%, what is the value of a share in Company Q?

What I know:
Current Div=1.40
Required rate of return=10%
Retention Ratio=90% ?
Growth rate=5%
I think this formula??
DIV/r-g

  • Finance - ,

    Finance not my thing but--
    If we are talking about forever, then all that matters is the value of the flow of dividends and your discount rate or required rate of return.

    Vo = 1.40 + 1.40 (1.05/1.1) + 1.40 (1.05/1.1)^2 .... geometric series
    g = 1.4
    r = 1.05/1.1 = .954545...
    sum of infinite geometric series = g/(1-r)
    =1.4/ .0454545...
    =30.8

Answer This Question

First Name:
School Subject:
Answer:

Related Questions

More Related Questions

Post a New Question