Avril Synchronistics will pay a dividend of $1.30 per share this year. It is expected that this dividend will grow by 5% each year in the future. What will be the current value of a single Avril share if the firm's equity cost of capital is 14%?

Question

Quizplus · Accepted Answer

The formula for the present value of a growing perpetuity is:
PV = C/(r-g)
where PV is the present value, C is the cash flow in the current period, r is the discount rate, and g is the growth rate of the cash flow.
Plugging in the values, we get:
PV = 1.30/(0.14-0.05) = $14.44
Therefore, choice C is the correct answer.

Avril Synchronistics Will Pay a Dividend of $1