Xinhua Manufacturing Company has been generating stable revenues that are not expected to grow in the foreseeable future. The company's last dividend was $3.25, and it is unlikely to change the amount paid out. If the required rate of return is 12 percent, what is the stock worth today? (Round the final answer to two decimal places.)

Question

Quizplus · Accepted Answer

To calculate the stock value using the dividend discount model,
Value of the stock = Dividend / (Required rate of return - growth rate)

Since the company's revenue is not expected to grow, the growth rate is 0. Therefore,
Value of the stock = 3.25 / (0.12 - 0) = 27.08

Therefore, the stock is worth $27.08 today.

Xinhua Manufacturing Company Has Been Generating Stable Revenues That Are