Matilda Industries pays a dividend of $2.45 per share and is expected to pay this amount indefinitely. If Matilda's equity cost of capital is 7%, which of the following would be expected to be closest to Matilda's share price?

Question

Quizplus · Accepted Answer

According to the dividend discount model, the price of a stock (P) is equal to the dividend (D) divided by the cost of equity (r).
P= D/r

Plugging in the given values for Matilda Industries, we get:
P= 2.45/0.07 = $35.00

Therefore, the expected share price closest to Matilda's is $35.00, so the correct answer is choice C.

Matilda Industries Pays a Dividend of $2