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26-10-2020
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Avril Synchronistics will pay a dividend of $1.20 per share this year. It is expected that this dividend will grow by 3% each year in the future. What will be the current value of a single share of Avril's stock if the firm's equity cost of capital is 16%

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topeadeniran2 topeadeniran2

26-10-2020

Answer: $9.23

Explanation:

From the information given in the question,

Market price of stock = Dividend/(Ke -g)

Dividend = $1.20

Ke = Cost of capital = 16% = 0.16

g = Growth rate = 3% = 0.03

Market price = 1.20/(0.16 - 0.03)

= 1.20/0.13

= $9.23

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