Wayne Enterprises Inc. pays a regular annual dividend on its common shares, which is expected to...
Wayne Enterprises Inc. pays a regular annual dividend on its common shares, which is expected to grow annually in perpetuity at the rate of 3%. The dividend was $3.00 per share. Ignoring settlement, taxes and other institutional issues, what is a fair price for the stock today if investors expect an annual return of 9%? Show how you calculated your answer.
Homework Answers
Next year dividend = Current dividend (1 + g)
Next year dividend = 3 (1 + 0.03)
Next year dividend = 3.09
Fair price = D1 / required rate - growth rate
Fair price = 3.09 / 0.09 - 0.03
Fair price = 3.09 / 0.06
Fair price = $51.50
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