Dividend Initiation and Stock Value A firm does not pay a dividend. It is expected to...

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Question

Dividend Initiation and Stock Value A firm does not pay a dividend. It is expected to pay its first dividend of $1.25 per sha

business finance

Answer 1

Answer #1

A. $53.88

First we will compute year 1 value of the stock and then discount this back one year to get the present value of the stock price.

P1 = D1 / (rs - g)

P1 = $1.25 / (0.16 - 0.14)

P1 = $62.50

Current value of the stock = $62.50 / 1.16

Current value of the stock = $53.88

Answer 2

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