A Ltd is currently paying a dividend of 90 cents per share.Assume that the investors expect this dividend to be maintained indefinitely and that they require a return of 15% on the investment.What is the value of A's shares?
A)$0.14
B)$16.66
C)$6.00
D)$1.05

Question

Quizplus · Accepted Answer

The value of A's shares can be calculated using the constant growth formula:

Share Value = Dividend / (Required Rate of Return - Dividend Growth Rate)

Since the dividend is expected to be maintained indefinitely, the dividend growth rate is zero. Therefore:

Share Value = 90 cents / (0.15 - 0) = $6.00

So the correct answer is C.

A Ltd Is Currently Paying a Dividend of 90 Cents