Constant growth: Johnson Company has just paid a dividend of $4.45. The company has forecasted a growth rate of 8 percent for the next several years. If the appropriate discount rate is 14 percent, what is the current price of this share? (Round to the nearest dollar.)
A) $74
B) $32
C) $80
D) $60

Question

Quizplus · Accepted Answer

We can use the constant growth formula to calculate the current share price: 
Current Share Price = Dividend / (Discount Rate - Growth Rate) 
Plugging in the values, we get: 
Current Share Price = $4.45 / (0.14 - 0.08) = $80 
Therefore, the correct answer is C.

Constant Growth: Johnson Company Has Just Paid a Dividend of $4.45