A company is expected to pay a dividend of $3.20 per share every year indefinitely and the equity cost of capital for the company is 10%. What price would an investor be expected to pay per share next year?

Question

Quizplus · Accepted Answer

The price an investor would be expected to pay per share next year can be calculated using the dividend discount model for a perpetuity, which is $ \text{Price} = \frac{\text{Dividend}}{\text{Cost of Capital}} $. Plugging in the given values, $ \text{Price} = \frac{3.20}{0.10} = 32.00 $.

A Company Is Expected to Pay a Dividend of $3