Shasta Co.just paid a dividend of $1.65 (D0)on its common stock.This company's dividends are expected to grow at a constant rate of 3% indefinitely.If the required rate of return on this stock is 11%,compute the current value per share of Shasta stock.

Question

Quizplus · Accepted Answer

To find the current value per share of Shasta stock, we can use the dividend discount model:

𝑃0 = 𝐷0 / (𝑟 − 𝑔)

Where P0 is the current stock price, D0 is the most recent dividend payment, r is the required rate of return, and g is the expected dividend growth rate.

Plugging in the given values, we get:

𝑃0 = 1.65 / (0.11 − 0.03) = $21.24

Therefore, the current value per share of Shasta stock is $21.24. Option B is the correct choice.

Shasta CoJust Paid a Dividend of $1