Main Street Tool & Die is in a downsizing mode. The company paid a $2 annual dividend last year. The company has announced plans to lower the dividend by $.50 a year. Once the dividend amount becomes zero, the company will cease all dividends permanently. You place a required rate of return of 18% on this particular stock given the company's situation. What is one share of this stock worth to you today?
A) $2.29
B) $2.47
C) $2.68
D) $2.72
E) $2.83

Question

Quizplus · Accepted Answer

The correct answer is A.The stock is worth $2.29 today. This is calculated by dividing the last dividend paid ($2) by the required rate of return (18%).

Main Street Tool & Die Is in a Downsizing Mode