Hilltop Markets will pay an annual dividend of $2.73 a share on its common stock next week. Last year, the company paid a dividend of $2.60 a share. The company adheres to a constant rate of growth dividend policy. What will one share of B&K common stock be worth 5 years from now if the applicable discount rate is 9.5%?

Question

Quizplus · Accepted Answer

The correct answer is A because the present value of the future dividends is $77.43. The dividend growth rate is 5%, and the discount rate is 9.5%. The formula for the present value of a growing perpetuity is:PV = D / (r - g)where:PV is the present valueD is the dividendr is the discount rateg is the dividend growth ratePlugging in the values, we get:PV = $2.73 / (0.095 - 0.05) = $77.43

Hilltop Markets Will Pay an Annual Dividend of $2