Healthy Foods just paid its annual dividend of $1.62 a share.The firm recently announced that all future dividends will be increased by 2.1 percent annually.What is one share of this stock worth to you if you require a rate of return of 15.7 percent?

Question

Quizplus · Accepted Answer

The correct answer is C. $12.16. The formula for the present value of a growing perpetuity is: PV = D / (r - g), where D is the current dividend, r is the required rate of return, and g is the growth rate. In this case, D = $1.62, r = 15.7%, and g = 2.1%. Plugging these values into the formula, we get: PV = $1.62 / (0.157 - 0.021) = $12.16.

Healthy Foods Just Paid Its Annual Dividend of $1