Cook Pharmaceuticals plans to pay $1.55 per share in dividends in the coming year.If its equity cost of capital is 8%,and dividends are expected to grow by 3% per year in the future,what is the value of Cook's stock?

Question

Quizplus · Accepted Answer

The correct answer is A because the value of Cook's stock is $31.00. This is calculated by dividing the dividend per share by the equity cost of capital minus the dividend growth rate. In this case, the dividend per share is $1.55, the equity cost of capital is 8%, and the dividend growth rate is 3%. Therefore, the value of Cook's stock is $1.55 / (0.08 - 0.03) = $31.00.

Cook Pharmaceuticals Plans to Pay $1