Burkhardt corp. pays a constant $14.00 dividend on its stock. Corp company will maintain this dividend for the next eight years and will then cease paying dividends forever. If the required return on this stock is 12 percent, what is the current share price?
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Answered on
To calculate the current share price of the stock, which has a constant dividend for a certain period and then stops paying dividends forever, you can use the formula for the present value of a perpetuity:
Present Value = Dividend / Required Return
Given:
Dividend (D) = $14.00 per year
Required return (R) = 12%
Present Value = D/R
Present Value = 14 / 0.12
Present Value = 116.67
Therefore, the current share price of the stock is approximately $116.67.