Wingnut Systems Pty Ltd is expected to pay a dividend of $2.54 at the end of the current year and that dividend is expected to grow at a constant rate of 4% p.a.The company's shareholders require a return of 10% p.a.on their investment.What is Wingnut System's current share price?

Question

Quizplus · Accepted Answer

We can use the dividend discount model to solve for the current share price. Using the formula:

Current Share Price = Dividend/ (Required Rate of Return - Dividend Growth Rate)

Plugging in the given values:

Current Share Price = 2.54 / (0.10-0.04)

Current Share Price = 2.54/0.06 = 42.33

Therefore, the current share price is $42.33. The correct answer is choice C.

Wingnut Systems Pty Ltd Is Expected to Pay a Dividend