Suppose NoGro, Inc. has just issued a dividend of $2.90 per share. Subsequent dividends will remain at $2.90 indefinitely. Returns on the stock of firms like NoGro are currently running 15%. What is the value of one share of stock?

Question

Quizplus · Accepted Answer

The value of a share of stock that pays a perpetual dividend can be calculated using the formula: Value = Dividend / Required Rate of Return. Here, the dividend is $2.90 and the required rate of return is 15% or 0.15. So, the value = $2.90 / 0.15 = $19.33.