Sales Company paid a $1.00 dividend per share last year and is expected to continue to pay out 40% of earnings as dividends for the foreseeable future.If the firm is expected to generate a 10% return on equity in the future,and if you require a 12% return on the stock,the value of the stock is ________.
A)$17.67
B)$13.00
C)$16.67
D)$18.67
E)none of the above

Question

Quizplus · Accepted Answer

The correct answer is A because the value of the stock is $17.67. This is calculated by dividing the expected dividend per share ($1.00) by the difference between the required return (12%) and the expected return on equity (10%).

Sales Company Paid a $1