Finance

Antiques ‘R’ Us is a mature manufacturing firm. The company just paid a dividend of $11.45, but management expects to reduce the payout by 4.5 percent per year, indefinitely.

Required:
If you require a return of 11 percent return on this stock, what will you pay for a share today?

  1. 👍 0
  2. 👎 1
  3. 👁 2,498
  1. 9.00

    1. 👍 0
    2. 👎 4
  2. P0 = D0 (1 + g) / (R – g)
    P0 = $11.45(1 – .045) / [(.10 – (–.045)]
    P0 = $70.55

    1. 👍 4
    2. 👎 0
  3. P0 = D0 (1 + g) / (R – g)
    P0 = $11.45(1 – .045) / [(.11 – (–.045)]
    P0 = $70.55

    1. 👍 0
    2. 👎 1

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