Zero growth: Xinhua Manufacturing Company has been generating stable revenues but sees no growth in it for 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?

Question

Quizplus · Accepted Answer

To calculate the stock price using the dividend discount model for zero growth, we can use the following formula:

Stock Price = Dividend / Required Rate of Return

Plugging in the given values, we get:

Stock Price = $3.25 / 0.12 = $27.08

Therefore, the stock is worth $27.08 today. Option C is the correct answer.

Zero Growth: Xinhua Manufacturing Company Has Been Generating Stable Revenues