Yesterday,Railway Tours paid its annual dividend of $1.20 per share.The company has been reducing the dividends by 10 percent each year.What is the value of this stock at a discount rate of 13 percent?

Question

Quizplus · Accepted Answer

The correct answer is A because the value of the stock is $4.70. The dividend is $1.20 per share, and the discount rate is 13%. The value of the stock is calculated as follows:Value of stock = Dividend / (Discount rate - Dividend growth rate)= $1.20 / (0.13 - 0.10)= $1.20 / 0.03= $4.70

Yesterday,Railway Tours Paid Its Annual Dividend of $1