Ground Chuck Processing just paid its annual dividend of $1.25 per share.The firm recently announced that all future dividends will be increased by 3 percent annually.What is one share of this stock worth to you if you require a rate of return of 11.5 percent?

Question

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The correct answer is C.The value of a share of stock is the present value of all future dividends. In this case, the dividends will grow at a constant rate of 3% per year. The present value of a growing perpetuity is given by the formula:PV = D / (r - g)where:PV is the present valueD is the current dividendr is the required rate of returng is the growth rate of the dividendsIn this case, the current dividend is $1.25, the required rate of return is 11.5%, and the growth rate of the dividends is 3%. Plugging these values into the formula, we get:PV = $1.25 / (0.115 - 0.03) = $15.15Therefore, one share of this stock is worth $15.15 to you if you require a rate of return of 11.5%.

Ground Chuck Processing Just Paid Its Annual Dividend of $1