Over the past 10 years the dividends of Allegro have grown from $0.45 to $1.82 per share. Determine the value of Allegro's common stock to an investor who requires a 20% rate of return, assuming that dividends continue growing at the same rate as they grew over the past 10 years.
A) $36.40
B) $41.86
C) $43.68
D) $20.93

Question

Quizplus · Accepted Answer

The correct answer is B because the value of Allegro's common stock to an investor who requires a 20% rate of return, assuming that dividends continue growing at the same rate as they grew over the past 10 years, is $41.86. This is calculated by dividing the expected dividend per share in year 11 ($1.82 x 1.20 = $2.18) by the required rate of return (20%).

Over the Past 10 Years the Dividends of Allegro Have