Blue Water Tours just paid an annual dividend of $0.72 a share. The firm has a policy of increasing the dividend by 3.0 percent annually. What is the current value of this stock at a discount rate of 11.7 percent?

Question

Quizplus · Accepted Answer

The correct answer is A because the current value of the stock is $8.52. This is calculated by dividing the annual dividend by the discount rate minus the growth rate. In this case, the annual dividend is $0.72, the discount rate is 11.7 percent, and the growth rate is 3.0 percent. So, the current value of the stock is $0.72 / (0.117 - 0.03) = $8.52.

Blue Water Tours Just Paid an Annual Dividend of $0