NoGrowth Industries presently pays an annual dividend of $1.50 per share and it is expected that these dividend payments will continue indefinitely. If NoGrowth's equity cost of capital is 12%, then the value of a share of NoGrowth is closest to:

Question

Quizplus · Accepted Answer

The value per share of NoGrowth Industries can be calculated using the Gordon Growth Model as follows:
Value per share = Dividend per share / (Cost of Equity - Dividend Growth rate)
Given, Dividend per share = $1.5
Cost of equity = 12%
Dividend Growth rate = 0% (as the dividend payments are expected to continue indefinitely with no growth)
Substituting the values, 
Value per share = $1.5 / (0.12 - 0) = $12.50
Therefore, the closest value of a share of NoGrowth Industries is $12.50, which is option C.

NoGrowth Industries Presently Pays an Annual Dividend of $1