Shasta Co.just paid a dividend of $1.65 (D₀)on its common stock.This company's dividends are expected to grow at a constant rate of 3% indefinitely.If the required rate of return on this stock is 11%,compute the current value per share of Shasta stock.

Question

Quizplus · Accepted Answer

We can use the constant growth formula to find the current value per share of Shasta stock:
Current Value = Dividend / (Required Rate of Return - Dividend Growth Rate)
Current Value = $1.65 / (0.11 - 0.03) = $1.65 / 0.08 = $20.625
The nearest option is B) $21.24, which is the correct answer.

Shasta CoJust Paid a Dividend of $1