National Warehousing just announced it is increasing its annual dividend to $1.18 next year and establishing a policy whereby the dividend will increase by 3.25 percent annually thereafter.How much will one share of this stock be worth 8 years from now if the required rate of return is 9.5 percent?
A)$24.38
B)$25.68
C)$26.51
D)$27.02
E)$27.37

Question

Quizplus · Accepted Answer

The correct answer is A because the dividend will increase by 3.25 percent annually, so the dividend in 8 years will be $1.18 * (1 + 0.0325)^8 = $1.44. The stock price will be $1.44 / 0.095 = $24.38.

National Warehousing Just Announced It Is Increasing Its Annual Dividend